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Towards the Circular
Economy:
Accelerating the scale-up
across global supply chains
Prepared in collaboration with the Ellen MacArthur Foundation and McKinsey & Company
January 2014
Disclaimer
The viewpoints expressed herein attempt to reflect
the collective opinion of various individuals who have
contributed to the research and development of
this report; they do not necessarily imply an agreed
position among them or institutional endorsement by
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the work or mentioned in the report, or of the World
Economic Forum.
Published by World Economic Forum,
Geneva, Switzerland, 2014
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Foreword – Ellen MacArthur Foundation
Today’s ‘take-make-dispose’ economy has long relied on
inputs of cheap and available resources to create conditions
for growth and stability. Within the past decade, however,
businesses have been hit by an increase in commodity prices
that has effectively erased the (average) decline of the entire
preceding century. Coupled with this, we expect three billion
more middle-class consumers by 2030. This unprecedented
rise in demand for a finite supply of resources calls into
question our current predominantly linear economic system.
18 leading companies from the
partnership networks of both the World
Economic Forum and the Ellen
MacArthur Foundation generously
provided expert support to this
research. They are listed below.
Members of the
World Economic Forum
Strategic Partners
Cisco*
The Coca-Cola Company*
Leighton Holdings Ltd
Nestlé SA
Philips*
Renault-Nissan BV*
SAB Miller Plc*
Industry Partners
Arup Group Ltd
B&Q Kingfisher Plc*
Brightstar Corp.
Heineken
Royal DSM*
Wesfarmers Limited
Global Growth Companies
Desso Holding BV*
Trina Solar Ltd
Members of the Ellen
MacArthur Foundation’s
Circular Economy 100
Hennes & Mauritz AB
IKEA
Ricoh
plus the companies above marked with *
Ellen MacArthur
Founder, Ellen
MacArthur Foundation
Cowes, Isle of Wight
The concept of the circular economy is rapidly capturing
attention as a way of decoupling growth from resource
constraints. It opens up ways to reconcile the outlook for
growth and economic participation with that of environmental
prudence and equity. It is inspiring CEOs, politicians,
engineers, designers and the next generation of leaders.
Our research highlights immediate and relatively easy-toimplement opportunities, analysing a number of specific
examples. It uses current technologies and trends to estimate
the materials cost savings of adopting a more restorative
approach at over US$ 1 trillion p.a. by 2025, net of materials
costs incurred during reverse-cycle activities.
We are now observing the evolution of circular business
models as leading companies drive innovation across
product design, development of product-to-service
approaches and new materials recovery methods. These are
demonstrating potential to disrupt the linear economy. A
deeper and broader understanding of how to capture
commercial value across supply chains from a very practical
perspective is needed to accelerate and scale this trend.
The World Economic Forum’s report Accelerating the
scale-up across global supply chains report plays a
crucial role in this market evolution by exploring how
businesses can use the circular economy to drive arbitrage
opportunities across complex, global supply chains. While
examples of circular business models are emerging,
significant materials leakages still persist. This report provides
practical guidance on how businesses can address these
leakage points to capture the value of the circular economy
together with their partners—whether suppliers or
wholesales/retailers—and consumers. The initiative outlined
in this report, aims to make practical steps towards capturing
this opportunity through the facilitation of pure materials
flows, an important first move in the shift to a new economic
model.
The circular economy provides a framework to both
challenge and guide us as we rethink and redesign our future.
I would like to express my thanks to the thought leaders and
business pioneers who have informed this thinking and
helped make this work possible. These include our
collaborator, the World Economic Forum, McKinsey &
Company, which acted as project adviser and provided the
analytics for this report, as well as representatives from
leading businesses and experts who have contributed their
extensive know-how.
I believe this to be one of the greatest opportunities of our
time, and urge you to play your part in making it a reality.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
3
Preface – World Economic Forum
The past two years have seen a surge
in activity among business leaders to
forge collaboration and shape new
agendas on sustainable growth. The
‘circular economy,’ a term perhaps
unfamiliar just a few years ago, has now
also caught the imagination of thought
leaders across the world, and is taking
shape as a viable, practical alternative
to the current linear economic model.
Dominic Waughray
Senior Director,
World Economic
Forum
Geneva
A confluence of various global trends,
statistics and fresh economic analysis
has accelerated this agenda. Three
billion middle-class consumers are
expected to enter the global market by
2030, driving unprecedented demand
for goods and services. Commodity
prices overall rose by almost 150% from
2002 to 2010, erasing the real price
declines of the last 100 years. Experts
have calculated that without a rethink of
how we use materials in our linear
‘take-make-dispose’ economy, elements such as gold, silver, indium,
iridium, tungsten and many others vital
for industry could be depleted within
five to fifty years. If we remain in our
‘business as usual’ mode, price volatility
will continue to surge, alongside the
probable inflation of key commodities.
Business leaders are in search of a
better hedge to avoid these risks, and
are moving towards an industrial model
that decouples revenues from material
input: the circular economy.
The economic case for the circular
economy is tangible. The cost of
remanufacturing mobile phones could
(for example) be reduced by 50% per
device if the industry made handsets
that were easier to take apart, improved
the reverse cycle, and offered incentives
to return devices that are no longer
needed. High-end washing machines
would be accessible for most households if they were leased instead of
sold. Customers would save roughly a
third per wash cycle, while manufacturers would earn roughly a third more in
profits. The economic gain from
materials savings alone is estimated at
over a trillion dollars a year. A shift to
innovatively reusing, remanufacturing
and recycling products could lead to
significant job creation. 500,000 jobs
are created by the recycling industry in
the EU alone.
In short, the economic case for shifting
to a circular economy is compelling. The
economic impact of this change would
4
Towards the Circular Economy: Accelerating the scale-up across global supply chains
be evident for business and consumers
in both industrialized markets and
fast-growing economies. Cheaper
phones and washing machines are just
two of a myriad of benefits that could
swiftly materialize for tomorrow’s global
consumers. For governments, this shift
to circular economic activity could help
address the global job gap of 600 million
that the International Trade Union
Confederation forecasts by 2030 if
business as usual continues.
But how can change be catalysed on
such a scale? The economic gain can
be realised only if multiple players
across business and research communities come together and reconceive
key materials flows and manufacturing
processes, supported by policy-makers
and investors. The transaction costs of
shifting the status quo are extremely
high: no single entity can make this
happen on its own. A large-scale,
business-led collaboration is required.
At its Annual Meeting in Davos this year,
the World Economic Forum hosted over
seventy leaders from industry, government, academia and civil society to
discuss exactly this problem: how can
the circular economy be scaled up?
Many of the participants at this session
were inspired by the work of the Ellen
MacArthur Foundation, which has
emphatically set out the trillion dollar
economic case for a circular economy.
Many had also been involved in the World
Economic Forum Sustainable Consumption Initiative 2008 - 2012, or in other
World Economic Forum communities,
initiatives and global agenda councils
focused on sustainability and circular
economy issues. The Young Global
Leaders (YGL) Circular Economy
Innovation and New Business Models
Taskforce is one example, or the Global
Growth Companies Sustainability
Champions, Technology Pioneers, and
the Global Agenda Council for Sustainable Consumption. The discussion also
covered a wide range of national sustainable growth initiatives—notably the Dutch
Sustainable Growth Coalition, and public
sector institutions ranging from the
European Commission to the Brazilian
National Development Bank. A common
thread ran through all of these groups: a
critical mass of leaders prepared to voice
their desire for action, ready to ‘break
pack,’ and eager to become first movers
in scaling up the circular economy.
The plea to the World Economic Forum
at that meeting was clear: given the
compelling economic case for action,
could the Forum help architect collaboration to scale up the circular economy?
I am delighted to say that this report and
the proposal for collaborative global
action it contains is the response to the
challenge set by those leaders who met
in Davos in January. Based on extensive
new research, this report sets out the
business as well as the economic case
for action, and identifies where industry
leaders’ energy may best be focused to
catalyse change. Over 30 business
leaders and experts from the networks
of the World Economic Forum’s leading
companies and the Ellen MacArthur
Foundation’s Founding Partners and
CE100 were interviewed in the course of
this work, ensuring that any plan for
action would be have a sound, practical
foundation.
The subsequent chapters in this report
set out key areas of the research and its
findings, and present a detailed plan of
action.
The proposal focuses on materials and
some aspects of product design—one
of the four building blocks of a circular
economy (the other three being new
business models, global reverse
networks, and enabling conditions). This
is an important and practical starting
point as it will enable creation of a new
palette of materials for building a
regenerative economy. Our core
proposal is inspired by how a de-facto
standard for polyethylene terephthalate
(PET) in packaging has emerged across
multiple beverage companies since the
1970s, driving the recycling and remanufacturing of PET products to a high
degree. This proposal focuses on
catalysing a similar outcome for a
signature group of materials stocks that
permeate our global supply chains:
polymers (particularly polypropylene)
and paper & cardboard are examples.
Three future-focused signature materials
will also be examined, noting how the
global materials market is likely to
change radically in the coming decades.
These include bio-based materials (for
packaging for example), materials for 3D
printing (set for explosive growth in the
coming decade), and carbon dioxide
recovery. This latter initiative overturns
the concept of CO2 as a pollutant,
instead exploring how it could become a
valuable economic asset for other
businesses, serving as a feedstock for
polymers and other materials currently
dependent on oil.
We hope that bringing together experts
from corporations and research
organizations will generate a new wave
of collaboration across industries and
geographies to develop the blueprint for
a large, steady and pure materials
stream for each of the materials
selected. The aim is to ensure that all
players can capture the value of multiple
recycling and remanufacturing easily
and quickly. The project will trigger
action to implement the rollout, tracking
the innovation, jobs, economic value
and environmental gain that can be
tapped as a result. The practical role
policy-makers, the R&D sector and
investors can play to help accelerate the
process and harness its economic
benefits will be explored in parallel.
The initiative will support 24 months of
activity across these various issues,
involving task forces of senior executives and technicians as well as representatives from government, academia,
investors and civil society from multiple
geographies and sectors. Success
factors at the end of this period will be
threefold:
-- A new list of pure signature materials
together with their building blocks,
conversion methods and reverse
setup, co-designed and agreed informally by enough key parties around
the world to change the global
economy in that field
-- Proof of concept in two or more
signature materials categories,
demonstrating how to make the
change happen by working with
leading businesses, their suppliers
and customers of that material to
anchor the new materials specifications
-- A set of practical suggestions from all
the stakeholders involved reflecting
how they have learned to accelerate
and enable the process in their
particular field, and how they are
benefitting from the resulting innovation.
All the outcomes will be captured in a
comprehensive report extrapolating the
core economic case surrounding this
change effort. As with all World Economic Forum initiatives, we will also convene a
CEO-led steering board to govern and
steer the work at a strategic level.
If successful, the project offers profound
impact on scaling circular economy
benefits. The collaborative waves
across four to five materials flows has
potential to trigger net benefits of at least
$500 million and 100,000 new jobs, as
well as to avoid/valorize 100 million
tonnes of materials waste within 5 years.
To realise this ambitious initiative, the
World Economic Forum is delighted to
have entered into collaboration with the
Ellen MacArthur Foundation, and with
the global management consulting firm
McKinsey & Company, which acted as
project adviser and provided the
analytics for this report. The high level of
input and enthusiasm from both the
Ellen MacArthur and the McKinsey
teams to drive the work forward has
been exemplary, and lays a strong
foundation for the collaboration ahead.
Alongside the many to whom we owe
our deepest thanks (detailed in the
Acknowledgements), we are indebted
most of all to Ellen MacArthur herself for
championing this initiative, and for
driving the circular economy agenda so
passionately across and among the
global business community.
The Forum would like to acknowledge
the leadership and interest shown by so
many of its industry members to help
shape and drive the development of this
work. Fifteen leading World Economic
Forum’s Strategic Partners, Industry
Partners and Global Growth Companies were interviewed to provide input
for the report and help design the focus
of the proposal. They are mentioned
overleaf: the project team offers their
sincerest thanks for the time and effort
each invested to assist this work.
The project team would also like to
express its gratitude to the various New
Champion communities of the World
Economic Forum, including the Young
Global Leaders Circular Economic
Initiative. It particularly extends its thanks
to Peter Lacy and David Rosenberg,
leaders of the YGL Circular Economy
Taskforce, the Global Growth Company
community, the Technology Pioneers,
and the Social Entrepreneurs.
The work ahead will represent a truly
collaborative effort, and we look forward
to drawing on all the combined networks of the World Economic Forum
and the Ellen MacArthur Foundation. I
can think of no more appropriate stage
for presenting the proposal and
launching this initiative than the Annual
Meeting of the New Champions—the
Forum’s ‘Summer Davos’ in China,
which is taking place in Dalian this year.
I hope you enjoy the report and the
proposal for action it contains, and we
look forward to engaging with you on
this pivotal initiative.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
5
Acknowledgements
Core project team
The Coca-Cola Company
Heineken
Jamie Butterworth, CEO, Ellen
MacArthur Foundation
-- April Crow, Global Sustainability
Director, Packaging
-- Roland Verstappen, Global Director,
Public Governmental Affairs
Andrew Morlet, Business Programme
Lead, Ellen MacArthur Foundation
-- Katherine Schermerhorn,
Communications Manager
I:CO
Hanh P. Nguyen, Project Manager,
Catalysing the circular economy at
scale, World Economic Forum (on
secondment from McKinsey &
Company)
Collaborative Lab
-- Paul Doertenbach, Global Account
Manager
-- Rachel Botsman, Founder
-- Max Schwilk, Project Manager
Desso Holding BV
-- Tamara Zwart, Head of I:CO Alliance
-- Alexander Collot d’Escury, CEO
Ikea
-- Anette Timmer, Director Marketing,
Communications & C2C
-- Simon Henzell-Thomas, Group
Sustainability Policy and Stakeholder
Engagement Manager
Jeremy Oppenheim, Director, Global
Leader, Sustainability and Resource
Productivity, McKinsey & Company
Martin Stuchtey, Director, Global
Leader, Strategic Resources, McKinsey
& Company
Elsa Studer, Project Associate,
Environmental Initiatives, World
Economic Forum
Helga Vanthournout, Expert, Waste and
Resource Management, McKinsey &
Company
Dominic Waughray, Senior Director,
Environmental Initiatives, World
Economic Forum
Markus Zils, Partner, Global Leader,
Logistics and Supply Chain Solutions,
McKinsey & Company
Contributors
Arup Group Ltd
-- Francesca Galeazzi, Associate,
Sustainability
-- Chris Luebkeman, Director for Global
Foresight and Innovation
B&Q/Kingfisher Plc
-- Alex Duff, Corporate Affairs Manager
-- James Walker, Head of Innovation
Biomimicry 3.8 Institute
-- Rudi Daelmans, Director of
Sustainability
-- Willem Stas, Director of Operations
EPEA
-- Michael Braungart & Douglas
Mulhall, Representatives of the
Academic Chair, Cradle to Cradle for
Innovation and Quality, Rotterdam
School of Management, Erasmus
University, as well as EPEA
Internationale Umweltforschung
Ecovative
-- Sam Harrington, Marketing, Sales &
LCA Director
Electrolux
-- Monica Celotto, Project Leader,
Global Technology Center
-- Ralf Dicke, General Manager of
Corporate Strategy
Lend Lease
-- David Nieh, Head of China
McKinsey & Company
-- Zaid Ghazaleh, Associate
-- Vasudha Gupta, Senior Analyst,
Waste and Resource Management
-- Chris Musso, Expert Partner,
Operations: Product Development
-- Krista Ryu, Business Analyst
-- Sam Samdani, Senior Knowledge
Expert, Global Chemicals &
Agriculture
-- Daniele Gallo, Material Engineer,
Global Technology Center
-- Ulrich Weihe, Partner, EMEA Leader,
Chemicals & Agri¬culture
Ellen MacArthur Foundation
-- Johnson Yeh, Associate Partner,
Clean Technologies
-- Jocelyn Blériot, Head of Editorial –
European Affairs
-- Ella Jamsin, Analyst
-- Ellen MacArthur, Founder
-- James O’Toole, Global Partnerships
Manager
BrightStar Corp.
-- Ken Webster, Head of Innovation
-- Jesus Lebena, Vice President, Latin
America Supply Chain & Operations
-- Stuart Whitman, Programme
Manager
-- Maria Menacho, Chief of Staff
Hennes & Mauritz AB
Cisco
-- Mikael Blomme, Sustainability
Innovation Responsible
6
-- Patrick Brothers, Executive General
Manager, Corporate Strategy
-- Karl Edsjö, Project Manager,
Environmental & European Affairs
-- Janine Benyus, Co-founder
-- Neil Harris, Head of Sustainable
Business
Leighton Holdings
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Nestlé SA
-- Claus Conzelman, Vice President,
Head of Safety, Health &
Environmental Sustainability
-- Herbert Oberhaensli, Vice President,
Economics and International
Relations
Philips
Production
-- Marcel Alberti, Manager Group
Strategy
Editors: Gilian Crowther and Terry
Gilman, McKinsey & Company
-- Emile Cornelissen, Head of Supplier
Sustainability and New Venture
Integration Manager of Philips Group
Purchasing
Graphic designers: Robert Götzfried
and Karin Malinski, McKinsey &
Company
-- Robert Metzke, Senior Director
EcoVision Program
Renault-Nissan BV
-- Jean-Philippe Hermine,
Environmental Director
Ricoh Europe
-- Yasunori Naito, Manager,
Environmental Management
-- Olivier Vriesendorp, Director of
Product Marketing
Ricoh UK Ltd.
-- Philip Hawkins, Assistant General
Manager, Business Strategy and
Supply Chain Projects
SABMiller Plc
-- Andre Fourie, SAB Head of
Sustainable Development
-- Andy Wales, SVP, Head of
Sustainable Development
The University of York
-- Prof. James Clark, Green Chemistry
Trina Solar Ltd
-- Jeffrey Fan, Corporate
Communications Director
-- Jodie Roussell, Director of Public
Affairs, Europe
Layout design: Kamal Kimaoui, World
Economic Forum
Design: Yoren Geromin, Kissing
Kourami
In addition, the project team expresses
its gratitude to the following World
Economic Forum colleagues for their
support throughout the project:
-- Tiffany West, Director, Head of
Agriculture, Food and Beverage
Industry
-- Chen Xiaochen, Senior Community
Manager, Centre for Global Growth
Companies
-- Cheryl Yip, Associate Director,
Partnership
-- Nathalie Chalmers, Senior
Programme Manager, Environment
and Sustainability
-- Marc Cuénod, Senior Strategic
Partnership Associate
-- Tania Cullen, Associate Director,
Partnership
-- Cristina Ferrer, Senior Community
Associate, Consumer Industries
-- Andrew Hagan, Director, Head of
Chemicals Industry
-- Antoine Hirschy, Senior Partnership
Manager
-- Casper Jorna, Manager Terminals
Sustainability
-- Thorsten Jelinek, Associate Director,
Europe Membership
-- Michael Just, Principal Manager New
Business Development Terminals Strategy & Business Development
-- Hanseul Kim, Associate Director,
Engineering and Construction
Industry
Wesfarmers Limited
-- Akshay Mohan, Associate Director,
Science and Technology
-- Cyndi Rhoades, Closed Loop
Executive Officer
-- Bruce Weinelt, Director, Head of
Telecommunication Industry
-- Michelle Barrett, Community
Manager, Information Technology
Industry
-- Qin He, Associate Director,
Telecommunications Industry
Worn Again
-- Masao Takahashi, Associate
Director, Head of Japan Membership
-- Bosco Astarloa, Senior Community
Manager, Head of Renewables
Industry
Vodafone
-- Kate Chaney, Manager Sustainability
and Community Partnerships
-- Lisa Sweet, Associate Director,
Consumer Industries
-- Robin Ried, Associate Director,
Infrastructure and Urban
Development Industry
-- Eric Roland, Associate Director,
Young Global Leaders
-- Sarah Shellaby, Community
Manager, Consumer Industries
-- Elena Smirnova, Associate Director,
Partnership
Towards the Circular Economy: Accelerating the scale-up across global supply chains
7
8
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Contents
3 Foreword by the Ellen MacArthur Foundation
4 Preface by the World Economic Forum
6 Acknowledgment
10 Executive summary
13 1 The benefits of a circular economy
13
The limits of linear consumption
15
From linear to circular—Accelerating a proven concept
16
How it works up close—Case examples of circular products
18
An economic opportunity worth billions— Charting the new territory
21 2. Why the time to act is now
21
Mounting pressure on resources
23
Favourable alignment of enablers
29 3. What are the leakage points?
29
Losses due to of geographic dispersion
33
Leakages due to materials complexity and proliferation
36
Trapped in the linear lock-in
39 4. What are the solutions?
39
Set up global reverse networks
42
Reorganize and streamline pure materials flows
47
Innovate demand-focused business model
48
Focus on pure materials stock management at the outset
51 5. Joining forces to make the change
51
Project charter
51
A clear plan of action
56 Glossary
57 Literature
58 Appendix 1: Returnable bottles—benefits of a local closed loop system
58 Appendix 2: Power drill—business case for circular business setup
59 List of figures
59 List of text boxes
60 References
Towards the Circular Economy: Accelerating the scale-up across global supply chains
9
Executive summary
Business leaders, consumers and governments alike have
discovered that continued wealth generation requires a new
industrial model that is less dependent on primary energy
and materials inputs, and ultimately able to regenerate our
natural capital. In its recent reports, the Ellen MacArthur
Foundation has focused on the economic and business
benefits of such a circular model of growth.
In this report, the World Economic Forum and the Foundation,
with analytics provided by McKinsey & Company, acting as
project adviser, joined forces to reconcile the concept of
scaling a circular economy within the reality of a global
economy and complex multi-tier supply chains. The key
objective is to propose a very specific joint plan of action for
industry leaders.
The challenge of closing materials loops and regenerating
natural assets is an exponential function of product
complexity and supply chain length. While more localized
production is experiencing a robust renaissance in some
economies, we cannot ignore nor fail to tap the power of
global division of labour, specialization and economies of
scale. This report sets out to emphasize that the circular
economy must hold its promise not merely to the village
economy, but also to a globalized economy of nine billion.It
presents the concept of circularity as a tangible driver of
industrial innovations and value creation for the 21st century
global economy. In addition, it positions the concept for
today’s global CEO as a practical business strategy to
“hedge” against the complex and interconnected risks of
resource competition, commodity price volatility, new
materials technologies and changing consumer demands. A
number of key messages stand out:
1. The circular concept fosters wealth and employment
generation against the backdrop of resource constraints.
Circular business models will gain an ever greater competitive
edge in the years to come because they create more value
from each unit of resource than the traditional linear ‘takemake-dispose’ model. Accelerating the scale-up promises to
deliver substantial macroeconomic benefits as well as open
up new opportunities for corporate growth. The materials
saving potential alone is estimated at over a trillion dollars a
year. The net employment opportunity is hard to estimate,
and will largely depend on the labour market design. But
even today, the job creation potential of remanufacturing
globally and recycling in Europe already exceeds one million.
10
Towards the Circular Economy: Accelerating the scale-up across global supply chains
2. Circular supply chains are up and running— and they’ve
gone global. The global secondary fibre stream for paper
and cardboard is one example. The economics of such
arbitrage opportunities are expected to improve as raw
materials prices rise and the costs of establishing reverse
cycles decline. Trends favouring lower costs and making it
possible to close the reverse loop include urbanization, which
concentrates demand, allowing tighter forward and reverse
cycles. Advanced tracking and treatment technologies also
boost the efficiency of both forward and reverse logistics.
Governments have started to provide stimuli, too: higher
charges for landfill increase the competitiveness of circular
products, and thus the arbitrage opportunities of setting up
reverse cycle options.
3. Supply chains are the key unit of action, and will jointly
drive change. In its most extreme manifestation, the global
economy is a massive conveyer belt of material and energy
from resource-rich countries to the manufacturing
powerhouse China, and then on to destination markets in
Europe and America where materials are deposited or—to a
limited degree—recycled. This is the opposite of a loop. The
materials leakage points and barriers to mainstreaming the
new model of circular material flows in a globalized economy
must now be addressed and overcome. This requires better
understanding of the archetypes into which supply chains fall,
and the three main barriers to change: geographic
dispersion, materials complexity, and linear lock-in. Analysing
the most advanced business cases confirms that a supply
chain management approach that balances the forward and
reverse loops and ensures uniform materials quality is critical
to maximizing resource productivity globally. The transition
can begin once the hinge points are identified and acted
upon in a concerted effort—across companies, geographies,
and along the supply chain.
4. Defining materials formulations is the key to unlocking
change. The materials list is exploding. A wide range of new
additives are added each year, making post-use valorization
ever more demanding. The key is to tame materials
complexity by defining and using a set of pure materials
stocks at scale, designing out the leakages that hamper
classification from the start. Reorganizing and streamlining
flows of pure materials will create arbitrage opportunities that
generate economic benefits and make investments in reverse
cycle setups profitable.
5. Four materials categories are prime candidates for
demonstrating viability. The potential building blocks for
flagship projects are materials that are already sizeable and
well understood, where a concerted effort by a few large
players can create markets large enough to surpass the
threshold value for viable circular arbitrage models. Each
category is at a different stage of maturity in terms of circular
setup and development, offering scope for credibly
demonstrating viability across a wide spectrum.
-- ‘Golden Oldies.’ These are well-established, high-volume
recylates with a remaining purity challenge. Paper and
cardboard as a high-volume materials stream has high
collection rates, but suffers from quality loss and ink
contamination during the reverse cycle, resulting in an
estimated US$ 32 billion in value lost annually. PET, glass,
and steel also fall into this category.
-- ‘High Potentials.’ Materials used in high volumes that
currently lack systematic reuse solutions are polymers, for
example. Collection rates are limited and separating out
the materials/maintaining their quality and purity is hard
due to the high fragmentation of formulas, supply chains
and treatment technologies.
-- ‘Rough Diamonds.’ These are large-volume by-products
of many manufacturing processes, such as carbon dioxide
and food waste. A broad set of valorization technologies is
emerging, however, that could provide additional value and
displace virgin materials intake.
-- ‘Future Blockbusters.’ A number of innovative materials
have breakthrough potential, either from enabling
substantial improvement of materials productivity (e.g. 3D
printing), or having usage cycles that are fully restorative by
design and intention (bio-based materials).
6. Catalysing a series of “Trigger Projects” is the most
effective way to reach tipping points for each category
faster. Choosing a signature material from each category as
an example will facilitate practical collaboration on the study
of specific materials by different players across industries and
geographies. Findings for one signature material at a systems
level will often be highly transferable to other materials in the
same category. With proof of concept and initial flagship
successes, stakeholders can roll out the solutions to other
materials in that category much faster than trying to cover an
entire category in one go. The proposed signature materials
by category are paper and cardboard, polypropylene, carbon
dioxide, and bio-based and 3D printing materials. Agreement
on their preferred formulations will in itself fast-track the
scale-up of the circular economy, as well as opening up
exciting business opportunities.
7. Tangible outcomes can be achieved in two years
through joint action. A group of leading companies drawn
from the combined networks of the World Economic Forum
and the Ellen MacArthur Foundation acting in this
collaborative agenda can speed up transition to the circular
economy and achieve tangible outcomes within two years.
The initiative aspires to enable its participants to realise the
rewards of becoming first-movers: capturing the value of the
circular economy. For example, the four to five waves
established in this project will aim to reap net benefits of at
least US$ 500 million and 100,000 new jobs, as well as to
avoid/valorize 100 million tonnes of materials waste within 5
years. A further goal is to form a group of pioneers who will
jointly build the ability to tap resource productivity as a new
source of 21st century competitiveness. The initiative will
require coordination across multiple stakeholders to facilitate
systemic change, which is where the Forum and Foundation
will have the most impact. In 24 months, the initiative should
be able to create a preferred list of pure, high-quality materials
with cross-industry applications to aggregate volume and
enhance stock valorization. It should also be possible to arrive
at a proof-of-concept result within 24 months for two or more
selected materials. In parallel, the initiative will define methods
and systems enablers for achieving sustainable change in the
medium and long term.
Together, the Forum and the Foundation will provide
companies, governments, civil society and academic experts
with a multi-stakeholder platform for collaboration across
industry, regions and sectors on this crucial global project.
Delivering on this agenda will reap huge rewards for
businesses, individuals, and our planet. The downside of
continuing on our current linear course is daunting, but the
upside of making a switch now will be huge, for every one of
us.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
11
12
Towards the Circular Economy: Accelerating the scale-up across global supply chains
1. The benefits of a
circular economy
Linear consumption is reaching its limits. A
circular economy has benefits that are
operational as well as strategic, on both a
micro- and macroeconomic level. This is a
trillion-dollar opportunity, with huge potential for
innovation, job creation and economic growth.
The last 150 years of industrial evolution have been
dominated by a one-way or linear model of production and
consumption in which goods are manufactured from raw
materials, sold, used and then discarded or incinerated as
waste. In the face of sharp volatility increases across the
global economy and proliferating signs of resource depletion,
the call for a new economic model is getting louder. The
quest for a substantial improvement in resource performance
across the economy has led businesses to explore ways to
reuse products or their components and restore more of their
precious material, energy and labour inputs. A circular
economy is an industrial system that is restorative or
regenerative by intention and design. The economic benefit
of transitioning to this new business model is estimated to be
worth more than one trillion dollar in material savings.
The limits of linear consumption
Throughout its evolution and diversification, our industrial
economy has hardly moved beyond one fundamental
characteristic established in the early days of industrialization:
a linear model of resource consumption that follows a
take-make-dispose pattern. Companies harvest and extract
materials, use them to manufacture a product, and sell the
product to a consumer, who then discards it when it no
longer serves its purpose. This is truer now than ever. In
terms of volume, some 65 billion tonnes of raw materials
entered the economic system in 2010, and this figure is
expected to grow to around 82 billion tonnes in 2020.1
Recently, many companies have also begun to notice that
this linear system increases their exposure to risks—most
notably higher resource prices and supply disruptions. More
and more businesses feel squeezed between rising and less
predictable prices in resource markets on the one hand and
high competition and stagnating demand for certain sectors
on the other. The turn of the millennium marked the point
when real prices of natural resources began to climb
upwards, essentially erasing a century’s worth of real price
declines [Figure 1].
Figure 1: Sharp price increases in commodities since 2000
have erased all the real price declines of the 20th century
McKinsey Commodity Price Index1
Index: 100 = years 1999–20012
1 Based on the arithmetic average of four commodity sub-indexes: food, non-food agricultural
260
World War I
240
220
1970s oil shock
200
World War II
180
160
140
120
100
80
Great
Depression
Postwar
depression
60
Turning point in
price trend
0
1900
1910 1920
1930
1940 1950
1960
1970
1980 1990
2000 2010 2013
items, metals, and energy.
2 Data for 2013 are calculated based on the average of the first three months of 2013.
Source: Grilli and Yang; Pfaffenzeller; World Bank; International Monetary Fund; Organisation for
Economic Co­operation and Development (OECD) statistics; Food and Agriculture Organization of
the United Nations (FAO); UN Comtrade; McKinsey Global Institute analysis
At the same time, price volatility levels for metals, food and
non-food agricultural output in the first decade of the 21st
century were higher than in any single decade in the 20th
century.2 If no action is taken, high prices and volatility will
likely be here to stay if growth is robust, populations grow and
urbanize, and resource extraction costs continue to rise. With
three billion new middle-class consumers expected to enter
the market by 2030, price signals may not be strong or
extensive enough to turn the situation around fast enough to
meet this growth requirement.
Other trends indicate that the power of the linear model is
reaching its limits:
-- In modern manufacturing processes, opportunities to
increase efficiency still exist, but the gains are largely
incremental and insufficient to generate real competitive
advantage or differentiation.
-- An unintended consequence of eco-efficiency has been
accelerating energy use and resource depletion due to the
rebound effect which has negative impacts when improvements to energy and resource efficiency drive increases in
the real amounts of materials and energy used.3
-- Agricultural productivity is growing more slowly than ever
before, and soil fertility and even the nutritional value of
foods are declining.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
13
-- The risk to supply security and safety associated with long,
elaborately optimized global supply chains appears to be
increasing.
-- Many production sites with excessive requirements for
virgin resources—water, land or atmosphere— are
struggling to renew their licence to operate as they
compete in sensitive local resource markets.
Against this backdrop, business leaders are in search of a
‘better hedge’ and many are moving towards an industrial
model that decouples revenues from material input: the
circular economy.4 Analysis of circular setups in
manufacturing in Europe shows that the longer-term benefits
would be highest in the materials-intensive automotive,
machinery, and equipment industries.5 One of the early
adopters of the circular economy in the automotive industry is
the French car maker Renault.
Renault, has adopted circular principles across their
business. The following examples illustrate the kind of
operational changes they have made, and the economic
benefits realised.
-- Remanufacturing. Renault’s remanufacturing plant in
Choisy-le-Roi near Paris, France, employing 325 people,
reengineers different mechanical subassemblies, from
water pumps to engines, to be sold at 50 to 70% of their
original price, with a one-year warranty. The
remanufacturing operation generates revenues of US$ 270
million annually. The company also redesigns components
(such as gearboxes) to increase the reuse ratio and make
sorting easier by standardizing components. While more
labour is required for remanufacturing than making new
parts, there is still a net profit because no capital expenses
are required for machinery, and no cutting and machining
of the products, resulting in no waste and a better
materials yield. Renault has achieved reductions of 80%
for energy, 88% for water and 77% for waste from
remanufacturing rather than making new components.6
-- Managing raw material streams. Renault is moving to
maintain tighter control of their raw materials by developing
ways to better retain the technical and economic value of
materials all along the car’s life cycle.
-- As well as actively managing a flow of quality materials
dismantled from end-of-life vehicles and enhancing
actual recycling processes, Renault also adjusts the
design specifications of certain parts to allow closedloop or ‘functional’ recycling. This makes it possible to
turn end-of-life vehicles into high-grade materials
appropriate for new cars and avoid downcycling.7
-- Renault works with recyclers and waste management
companies—including a steel recycler and Suez
Environnement/Sita—to incorporate end-of-life
expertise upfront into product design and provide
access to a steady supply of components and
materials.8
14
Towards the Circular Economy: Accelerating the scale-up across global supply chains
-- Manufacturing service improvement. Across their supply
chain, Renault has identified areas to work with suppliers
to realise more circular benefits, which would be shared
between Renault and their suppliers. For example, Renault
has worked with their cutting fluid supplier to shift from a
traditional purchase transaction to a service model.
Previously, Renault bought the cutting fluids for their
machining centres as a standing order from the
manufacturer, but serviced the fluids in-house. The cutting
oil had to be changed frequently due to impurity and
incurred significant waste. Inspired by previous successes
with circular principles, Renault asked the supplier to
provide maintenance services for the cutting equipment,
including fluids, supply and waste disposal. The
manufacturer’s engineers went back to the lab, redesigned
the fluid and usage process, and extended Renault’s
usage period to a full year, yielding a total cost of
ownership reduction of 20%. This saving also does not yet
take into account the avoided cost for upgrading the waste
water treatment plant given that the full fluid service leads
to a reduction of 90% of the discharge volume of the plant
for this particular function. The supplier was able to turn a
commodity product into a differentiated solution to capture
the first-mover advantage and lock in a service contract
with Renault.9
-- Access-over-ownership business model. Renault
became the first car maker to lease batteries for electric
cars to help retain the residual value of electric vehicles (to
encourage higher consumption) and make batteries fully
traceable, ensuring a high collection rate for closed-loop
reengineering or recycling.
In the words of Philippe Klein, Renault’s Executive Vice
President, Product Planning, Programs & Light Commercial
Vehicle Division:
“The circular economy now impacts our business in a
positive way. The peaks in raw material costs, similar to those
experienced in 2004 (when steel price rose 40% in one year)
have had a serious impact on production costs. It is
extremely difficult to price this volatility, as it does not
represent an immediate functionality for the customer.
Therefore, closed- loop recycling is an important lever of risk
management for the company. Another example is remanufacturing of parts: the profitability of Choisy le Roi is far
higher than the average profitability of Renault’s industrial
sites. If you look at Choisy as an individual business unit, the
business model is already very profitable.”10
From linear to circular—
Accelerating a proven
concept
A circular economy is an industrial
system that is restorative or regenerative
by intention and design. It replaces the
end-of-life concept with restoration,
shifts towards the use of renewable
energy, eliminates the use of toxic
chemicals, which impair reuse and
return to the biosphere, and aims for the
elimination of waste through the
superior design of materials, products,
systems and business models.11
Such an economy is based on a few
simple principles, as shown in Figure 2.
First, at its core, a circular economy
aims to design out waste. Waste does
not exist: products are designed and
optimized for a cycle of disassembly
and reuse. These tight component and
product cycles define the circular
economy and set it apart from disposal
and even recycling, where large
amounts of embedded energy and
labour are lost. Second, circularity
introduces a strict differentiation
between consumable and durable
components of a product. Unlike today,
consumables in the circular economy
are largely made of biological
ingredients or ‘nutrients’ that are at least
non-toxic and possibly even beneficial,
and can safely be returned to the
biosphere, either directly or in a
cascade of consecutive uses. Durables
such as engines or computers, on the
other hand, are made of technical
nutrients unsuitable for the biosphere,
such as metals and most plastics.
These are designed from the start for
reuse, and products subject to rapid
technological advance are designed for
upgrade. Third, the energy required to
fuel this cycle should be renewable by
nature, again to decrease resource
dependence and increase systems
resilience (to oil shocks, for example).12
For technical nutrients, the circular
economy largely replaces the concept
of a consumer with that of a user. This
calls for a new contract between
businesses and their customers based
on product performance. Unlike in
today’s buy-and-consume economy,
durable products are leased, rented or
shared wherever possible. If they are
sold, there are incentives or agreements
in place to ensure the return and
thereafter the reuse of the product or its
components and materials at the end of
its period of primary use.
Figure 2: The circular economy—an industrial system that is restorative by
design
Technical materials
Biological materials
Mining/
materials
manufacturing
Farming/
collection1
Restoration
Parts
manufacurer
Biochemical
feedstock
Product
manufacturer
Recycle
Refurbish/
remanufacture
Service provider
Biogas
Cascades
Reuse/redistribute
Maintenance
Anaerobic
digestion/
composting2
Extraction of
biochemical feedstock2
Collection
Collection
Energy recovery
Leakage—to
be minimized
Landfill
1
2
Hunting and fishing
Can take both postharvest and postconsumer waste as an input
Source: Ellen MacArthur Foundation circular economy team drawing from Braungart & McDonough and Cradle to Cradle (C2C)
These principles all drive four clear-cut
sources of value creation that offer
arbitrage opportunities, i.e. ways to take
advantage of the price difference
between used and virgin materials
[Figure 3]:
The power of the inner circle refers to
minimizing comparative materials use
vis-à-vis the linear production system.
The tighter the circle, i.e. the less a
product has to be changed in reuse,
refurbishment and remanufacturing and
the faster it returns to use, the higher the
potential savings on the shares of
material, labour, energy and capital still
embedded in the product, and the
associated externalities (such as
greenhouse gas (GHG) emissions,
water and toxicity).
The power of cascaded use refers to
diversifying reuse across the value
chain, as as when cotton clothing is
reused first as second-hand apparel,
then crosses to the furniture industry as
fibre-fill in upholstery, and the fibre-fill is
later reused in stone wool insulation for
construction—substituting for an inflow
of virgin materials into the economy in
each case—before the cotton fibres are
safely returned to the biosphere.
The power of pure inputs, finally, lies in
the fact that uncontaminated material
streams increase collection and
redistribution efficiency while
maintaining quality, particularly of
technical materials, which in turn
extends product longevity and thus
increases material productivity.
The power of circling longer refers to
maximizing the number of consecutive
cycles (be it repair, reuse, or full
remanufacturing) and/or the time in
each cycle. Each prolonged cycle
avoids the material, energy and labour
of creating a new product or
component.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
15
Figure 3: Sources of value creation for the circular economy
… the inner circle
… circling longer
The
power of …
… cascaded use across
industries
$
$
These arbitrage opportunities are already creating so much
value at the company level that the circular economy concept
has clearly emerged from the shadows as a ‘niche’ approach.
Given its potential value, however, the circular economy has
only begun to scratch the surface.
… pure/non-toxic/easier-toseparate inputs and designs
$
SOURCE: Ellen MacArthur Foundation circular economy team
These four ways to increase material productivity are not merely
one-off effects that will dent resource demand for a short
period of time when these circular setups are introduced. Their
lasting power lies in changing the run rate of required material
intake. They can therefore add up to substantial cumulative
advantages over a classical linear business-as-usual case.
Figure 4: A circular economy would not just ‘buy time’
but also reduce the amount of material consumed to a
lower set point
Effect of circular system on primary material demand in widget market
Volume of annual material input required
1,500
1,000
Virgin material substituted
by circular material
500
0
2010
20
30
Demand BAU
40
50
60
70 2075
Demand under circularity
Effect of circular system on material stock and landfills
Cumulative volume of material used
25,000
20,000
In use
15,000
10,000
5,000
0
2010
20
30
50
40
60
70 2075
BAU material stock
BAU landfilled
Material stock
under circularity
Landfill under circularity
SOURCE: Ellen MacArthur Foundation circular economy team
The two Towards the Circular Economy reports published by
the Ellen MacArthur Foundation provide ample evidence that
circularity has started to make inroads into the linear
economy and has moved beyond proof of concept. A
number of businesses are already thriving on it. Innovative
products and contracts designed for the circular economy
are already available in a variety of forms—from innovative
designs of daily materials and products (e.g. biodegradable
food packaging and easy-to-disassemble office printers) to
pay-per-use contracts (for tyres for instance). Demonstrably,
these examples have in common that they have focused on
optimizing total systems performance rather than that of a
single component.
16
How it works up close—Case examples
of circular products
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Substantial savings are possible at a company level, as an
increasing number of reference cases demonstrate. Many
companies as diverse as Ricoh, Philips, H&M, Trina Solar,
and Vodafone are using different forms of circular arbitrage,
and are able to capture more value over time.
-- Ricoh—Resource recirculation in the inner loop.Ricoh,
provider of managed document services, production printing,
office solutions and IT services, established the Comet
Circle™ in 1994 as a catalyst for reducing environmental
impact. It embodies the belief that all product parts, for
example for copiers and printers, should be designed and
manufactured such that they can be recycled or reused. The
company established the GreenLine label as a concrete
expression of its commitment to resource recirculation, with an
emphasis on inner-loop recycling. GreenLine is now offered in
six major European markets and has quickly become a
success story because it increases customer choice, while
also keeping pace with Ricoh’s new equipment sales.
According to Ricoh, GreenLine has grown rapidly (5% from
2012 to 2013), now accounting for 10 to 20% of Ricoh’s unit
sales in these markets and earning a margin one-and-a-half to
two times higher than Ricoh’s new products. GreenLine
products allow Ricoh to reach non-traditional market
segments such as smaller businesses, and make Ricoh’s
offers more attractive for traditional enterprise customers,
which helps stabilize market share in a market with heavy price
competition. In addition to remanufacturing, the company
refurbishes and upgrades pre-owned machines.14
For products that cannot be remanufactured, refurbished,
or upgraded, Ricoh harvests the components and
recycles materials (at local facilities). Ricoh is starting to
explore crushing materials to ship back to manufacturing
facilities in Asia for use in new component production. The
company is on track to reach their targets to reduce the
input of new resources by 25% by 2020 compared with
2007 levels, and by 87.5% by 2050, and to reduce the use
of—or prepare alternative materials for—the major input
materials for products that are at high risk of depletion (e.g.
crude oil, copper and chromium) by 2050.
-- Philips—Lighting as a service. Philips has a track record
in the collection and recycling of lamps. For example, in the
EU, Philips has a stake in 22 collection and service
organizations that collect 40% of all mercury-containing
lamps put on the market and with a recycling rate greater
than 95%. In order to enhance collection of lighting
equipment, Philips recently started to also sell lighting as a
service. Philips says they can reach more customers if they
retain ownership of the lighting equipment as customers
don’t have to pay high upfront costs and Philips ensures
the sound environmental management of end-of-life
lighting equipment. It’s a new way for customers to achieve
their sustainability goals: high lighting performance, high
energy efficiency, and a low materials footprint.15
-- Vodafone—Offering consumers access. Vodafone is one
of the first movers in the ICT industry to capture the
benefits of the ‘access over ownership’ business model
with its Vodafone New Every Year/Red Hot and Buy Back
programmes, which allow the company to strengthen their
relationship with customers. Vodafone launched the New
Every Year/Red Hot programme in 2013 and has been
receiving very positive feedback from customers. The Buy
Back programme is now being rolled out across all
Vodafone markets, while New Every Year is available in
four markets currently (UK, Greece, the Netherlands and
Ireland). Vodafone works with a business partner to take
care of the reverse cycle network, in which most devices
collected are transported to Hong Kong and China for
sales in secondary markets.16
-- H&M—Collecting clothing for reuse and recycling.
Starting in early 2013, H&M launched a global in-store
clothing collection programme to encourage customers to
bring in end-of-use clothes in exchange for a voucher, an
initiative also taken by Marks & Spencer with Oxfam in the
UK. To manage downstream processing of the clothes
H&M collects, they collaborate with I:CO, an apparel
reverse logistics service provider, which handles the
manual sorting for rewear, reuse, recycling or energy
generation. I:CO’s biggest sorting facility in Germany
employs 600 people, and the company also has plants in
India and the US. Of the total clothing they collect, I:CO
estimates the average share that they select for marketing
as rewear—second-hand clothes that are sold
worldwide—at 40 to 60%. At the next loop level, reuse
accounts for another 5 to 10% on average: these are
textiles no longer suitable for wear, which are cascaded
into other products, including cleaning cloths, with very
limited upcycling of fibres into textile yarns. Textiles that
can’t be reused, 30 to 40% of the total on average, get a
new chance as textile fibres or are used to manufacture
products such as damping and insulating materials in the
auto industry. When these three options have been
exhausted, textiles are used to produce energy; I:CO
estimates the share of clothes collected that go to the
outermost loop of thermal utilization at 1 to 3%. Both H&M
and I:CO have been working on increasing upcycling and
functional recycling. H&M’s long-term aim is to find a
solution for reusing and recycling all textile fibre for new
uses and to use yarns made out of collected textiles in
their products. The H&M surplus from the collection
programme will be donated to the H&M Conscious
Foundation17, where they will fund innovations in reverse
capabilities and other areas linked to closing the loop on
textiles. The main revenue streams for I:CO come from the
resale of clothing, especially the high-value garments
(including vintage), and materials cascading. For H&M, the
benefits of the programme could possibly include greater
in-store traffic and an increase in customer loyalty. For
jeans, H&M partners with a supplier in Pakistan to close
the loop on fibres. Collected end-of-use jeans are shipped
to partner facilities to be crushed and respun into fibres to
use as input to make new jeans (replacing 20 to 25% of
virgin materials due to limitations in current mechanical
recycling practices).18
-- Trina Solar, one of the largest solar panel manufacturers in
the world based in China, have started developing
technologies and standards for recycling end-of-use
photovoltaic modules in anticipation of the obsolescence
of first-generation panels. The reverse logistics operation
will mostly be located in end-usage countries. Glass will be
extracted from the modules and used for other glass
applications, while the electronic control systems will be
treated as waste of electrical and electronic equipment
(WEEE).19 This will allow the company to reap the benefits
of secondary material value as well as remain compliant
with regulations.
Box 1: Opportunities in transitioning to a
circular model
The two Towards the Circular Economy reports published by
the Ellen MacArthur Foundation in 2012 and 2013 analysed in
full depth the options for several different categories of
resource-intensive products. The 2012 analysis—of complex
medium-lived products— showed that the use of circular
economy approaches would support improvements such as
the following:20
The cost of remanufacturing mobile phones could be
reduced by 50% per device, if the industry made phones
that were easier to take apart, improved the reverse cycle and
offered incentives to return phones.
High-end washing machines would be accessible for most
households if they were leased instead of sold. Customers
would save roughly a third per wash cycle, and the
manufacturer would earn roughly a third more in profits. Over
a 20-year period, replacing the purchase of five 2,000-cycle
machines with leases to one 10,000-cycle machine would
also yield almost 180 kg of steel savings and more than 2.5
tonnes of CO2 savings.
In the fast-moving consumer goods sector, analysed in the
2013 report, circular opportunities were identified all along the
value chain: in manufacturing (food and beverages), in the
distribution and consumption stages (textiles, packaging) and
in post-use processing (food waste). A number of
opportunities have been identified, including the following:
The UK could create an income stream of US$ 1.5 billion
annually at the municipal level by processing mixed food
waste discarded by households and in the hospitality sector.
A profit of US$ 1.90 per hectolitre of beer produced can be
captured by selling brewers’ spent grains.
In the UK, each tonne of clothing that is collected and
sorted can generate revenues of US$ 1,975, or a gross
profit of US$ 1,295 from reuse opportunities. These are the
aggregate impact of clothes being worn again, reused by
cascading down to other industries to make insulation or
upholstery stuffing, or simply recycled into yarn to make
fabrics that save virgin fibre.
Costs of packaging, processing and distributing beer
could be reduced by 20% by shifting to reusable glass
bottles.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
17
These results and those of the other products studied in
detail in the two reports (see Box 1) point at significant
materials productivity improvements if circular economy
principles are applied to product design, business models,
reverse cycle processes and/or other building blocks:
Figure 5: Circularity in manufacturing could yield net
materials cost savings of up to US$ 630 billion p.a. in the
EU alone
Net material cost savings1 in complex durables with medium lifespans
USD billion per year, based on current total input costs per sector2, EU
Circular design, i.e. improvements in materials selection and
product design (standardization/modularization of
components, purer materials flows, and design for easier
disassembly), lie at the heart of a circular economy.
520 - 630
(19 - 23%)1
Motor vehicles
Innovative business models, especially changing from
ownership to performance-based payment models, are
instrumental in translating products designed for reuse into
attractive value propositions.
340 - 380
(12 - 14%)1
Electrical machinery and apparatus
Other transport
Furniture
Core competencies along reverse cycles and cascades
involve establishing cost-effective, better-quality collection
and treatment systems (either by producers themselves or by
third parties).
Enablers for improving cross-cycle and cross-sector
performance are factors that support the required changes
at a systems level and include higher transparency for
materials flows, alignment of incentives, and the
establishment of industry standards for better cross-chain
and cross-sector collaboration. Other aspects are access to
financing and risk management tools, regulation and
infrastructure development, and—last but not least—
education, both to increase general customer awareness and
to create the skill base to drive circular innovation.
An economic opportunity worth billions—
Charting the new territory
Eliminating waste from the industrial chain by reusing
materials to the maximum extent possible promises
production cost savings and less resource dependence.
However, this report argues that the benefits of a circular
economy are not merely operational but strategic, not just for
industry but also for customers, and serve as sources of both
efficiency and innovation.
Economies will benefit from substantial net material savings,
mitigation of volatility and supply risks, drivers for innovation
and job creation, improved land productivity and soil health,
and long-term resilience of the economy.
Substantial net material savings. Based on detailed
product-level modelling, the Foundation’s first circular
economy report estimates that, in the medium-lived complex
products industries, the circular economy represents a net
materials cost savings opportunity of US$ 340 to 380 billion
p.a. at an EU level for a ‘transition scenario’ and US$ 520 to
630 billion p.a. for an ‘advanced scenario,’ net of the
materials used in reverse-cycle activities in both cases
[Figure 5]. The latter range equals 19 to 23% of current total
input costs, or a recurrent 3 to 3.9% of 2010 EU GDP.
Benefits in the advanced scenario are highest in the
automotive sector (US$ 170 to 200 billion p.a.), followed by
machinery and equipment.21
Machinery and equipment
Radio, TV, and communication
Medical precision and optical equipment
Office machinery and computers
Transition
scenario3
Advanced
scenario4
Material input cost savings net of material costs incurred for reverse cycle activities, percentages
as a share of total input costs in medium-lived complex product sectors
Most recent data for sector input costs on an EU level come from Eurostat 2007 input-output tables
3
Transition scenario: Conservative assumptions, focusing on changes in product designs, reverse
cycle capabilities
4
Advanced scenario: Assuming more radical changes especially in terms of further developed
reverse-supply-chain competencies, and other enabling conditions such as customer acceptance,
cross-chain and cross-sector collaboration, and legal frameworks
SOURCE: Eurostat 2007 input-output tables for EU-27 economies; Ellen MacArthur Foundation
circular economy team
1
2
The second report looked at fast-moving consumer goods
(FCMG), this time at the global level. The full value of the
circular opportunities, globally, could be as much as US$ 700
billion per annum in materials savings, or a recurrent 1.1% of
2010 GDP, all net of materials used in the reverse-cycle
processes [Figure 6].22 Those materials savings would
represent about 20% of the materials input costs incurred by
the consumer goods industry.
Figure 6: Circularity in relevant FMCG sectors could yield
net materials cost savings of ~US$ 700 billion p.a.
globally
Net material cost savings in consumers industries
US$ billion per year, based on total material savings
from consumer categories, global
Other
706 (21.9%)
26
Packaged food
270
Apparel
155
Beverages
Fresh food
Beauty and
personal care
Tissue and hygiene
121
Extrapolated from case examples
in 3 major categories
Differentiated by geography,
subcategory
Full range of consumer goods
industries
Energy and materials at today's
prices
98
All measures economically viable
today
10
26
Source: Ellen MacArthur Foundation circular economy team
18
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Mitigation of price volatility and supply risks. The net
materials savings would result in a shift down the cost curve
for various raw materials. For steel, the global net materials
savings could add up to more than 100 million tonnes of iron
ore in 2025 if applied to a sizeable share of the materials flows
(i.e. in the steel-intensive automotive, machining and other
transport sectors, which account for about 40% of demand).
In addition, such a shift would move the steel industry away
from the steep (increasing) right-hand side of the raw materials cost curve, thus likely reducing demand-driven volatility.23
Lasting benefits for a more resilient economy. Importantly,
any increase in materials productivity is likely to have a positive
impact on economic development beyond the effects of circularity on specific sectors. Circularity as a ‘rethinking device’
has proved to be a powerful new frame, capable of sparking
creative solutions and stimulating innovation.
Innovation. The aspiration to replace one-way products with
goods that are ‘circular by design’ and create reverse
logistics networks and other systems to support the circular
economy is a powerful spur to new ideas. Adopting more
circular business models would bring significant benefits,
including improved innovation across the economy [Figure 7].
It is already proving a vibrant terrain for entrepreneurs who
target the benefits of an economy that operates with higher
rates of technological development; improved materials,
labour, and energy efficiency, and more profit opportunities
for resource-productive companies.
Labour intensity
Labour spending per unit of GDP
output, EU-27 economies
Figure 7: Revamping industry, reducing materials
bottlenecks and creating tertiary sector opportunities
would benefit labour, capital and innovation
Primary
Secondary
In a world of circa 9 billion people and fierce competition for
resources, market forces are likely to favour those models
that best combine specialized knowledge and cross-sector
collaboration to create the most value per unit of resource
over linear models that simply rely on ever more resource
extraction and throughput. Natural selection will likely favour
the swift and agile players—able to quickly combine
circularity with scale—that are best adapted to a planet
transformed by humanity.
Land productivity and soil health. Land degradation costs
an estimated US$ 40 billion annually worldwide, without
taking into account the hidden costs of increased fertilizer
use, loss of biodiversity and loss of unique landscapes.
Higher land productivity, less waste in the food value chain
and the return of nutrients to the soil will enhance the value of
land and soil as assets. The circular economy, by moving
much more biological material through the anaerobic
digestion or composting process and back into the soil, will
reduce the need for replenishment with additional nutrients.
This is the principle of regeneration at work.
0.16
Tertiary
0.30
Innovation index¹
IBM/Melbourne Institute Index
Job creation potential. The effects of a more circular
industrial model on the structure and vitality of labour markets
still needs to be explored. It seems likely that the effects will
depend on the way these labour markets will be organized
and regulated, and yet: there are signs that a circular economy
might bring greater local employment, especially in entry-level
and semi-skilled jobs, which would address a serious issue
facing the economies of developed countries [see Figure 7].
This total prize is just the beginning of a much bigger set of
transformative value-creation plays as the world scales up the
new circular technologies and business models. We already
see a selective ‘grafting’ of new circular business models and
technologies during this period of transition. Initially, these
grafts may appear modest in their impact and play into niche
markets (e.g. growing greenhouse tomatoes, or hiring out
high-end fashion items). But over the next 15 years these new
business models will likely gain an increasing competitive
advantage because they inherently create much more value
from each unit of resource. They are also likely to meet other
market requirements associated with a more secure supply,
more convenience for consumers and lower environmental
costs.
0.14
Primary
180
274
Secondary
Tertiary
321
Capital intensity
Total expenditure/labour
expenditure, EU-27 economies
Primary
2.97
Secondary
Tertiary
4.07
1.87
Components of index include: R&D intensity; patent, trademark and design intensity;
organizational/managerial innovation; and productivity
Note: Primary sector (extraction), secondary sector (manufacturing) and tertiary sector (services)
1
Source: Labour intensity calculated using data taken from Eurostat input-output tables for EU-27;
innovation data from the IBM/Melbourne Institute Innovation Index (covering Australian industry),
2010
The circular approach offers developed economies an
avenue to resilient growth, a systemic answer to reducing
dependency on resource markets, and a means of reducing
exposure to resource price shocks as well as societal and
environmental ‘externality’ costs that are not picked up by
companies. A circular economy would shift the economic
balance away from energy-intensive materials and primary
extraction. It would create a new sector dedicated to reverse
cycle activities for reuse, refurbishing, remanufacturing or
recycling on the technical side, and anaerobic digestion,
composting and cascading on the biological side. At the
same time, emerging market economies can benefit from the
fact that they are not as ‘locked in’ in the linear model as
advanced economies are and therefore have the chance to
leapfrog straight into establishing circular setups when
building up their manufacturing-based sectors. Indeed, many
emerging market economies are also more materials
intensive than typical advanced economies, and could
therefore expect even greater relative savings from circular
business models. The circular economy will generate benefits
for stakeholders on every level—customers, businesses, and
society as a whole.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
19
20
Towards the Circular Economy: Accelerating the scale-up across global supply chains
2. Why the time
to act is now
The pressure on resource productivity is
reaching a breaking point. A number of
enablers are now also creating unique
opportunities to adopt more resource-efficient
approaches to value creation. The need for
action and ability to act have never been better
aligned.
An essential motive for adopting the circular economy as
outlined in the previous chapter is the opportunities to benefit
from arbitrage—by better harnessing the value of materials,
labour, energy and capital embedded in products after the
end of each cycle of use than what is possible with
conventional manufactured products, which are not designed
for reverse cycles. The attractiveness of these circular models
rises if resource prices are likely to remain high or even
increase, and if the costs of establishing the necessary
reverse cycle networks decline. These two conditions are
very much in place, as this chapter will show, suggesting that
the time to accelerate the transition towards a circular
economy at scale is now.
Mounting pressure on resources
Recent macroeconomic developments and underlying
long-term trends have heightened the urgency of scaling up
circular economy principles. From the 1850s to 2000,
declining real resource prices, especially for fossil fuels, were
the engine of economic growth in advanced economies.
Reusing materials was not a priority: it was easier to obtain
more primary resources, and cheap to dispose of them when
they reached the end of their use. The greatest economic
efficiency gains of the Industrial Revolution in fact came from
using more resources (particularly energy) to reduce labour
costs.
How this picture has changed
The economic efficiency gains just described have changed
for two key reasons: sustained rises in the price of resources
and unparalleled resource price volatility.
-- Stark and lasting resource price increases. In a trend
separate from the repeated financial and economic crises
over the last decade and a half, commodity prices overall
increased by nearly 150% from 2002 to 2010, erasing the
entire last century’s worth of real price declines. Almost all
companies interviewed in this scoping study confirmed
steep materials cost increases in recent years. Costs of
key materials and components for making a power drill at
B&Q/Kingfisher, for example, increased at a weighted
average of 59% from 2010 to 2011 [Figure 8]. To decouple
themselves from resource scarcity and price increases,
B&Q/Kingfisher, Renault and Ricoh have moved to take
control of their supplies and to protect their businesses
from sudden shocks. Renault has a joint venture with a
steel recycler and waste management company to tap into
secondary material streams.24 Ricoh has established a
tight materials loop, the Comet CircleTM, aimed at
reducing their virgin material intakes.25
Figure 8: The price went up for most components of the
14.4V drill drive between 2010 and 2011
Indexed price1
Weighted
average
2011/2010
2011
Ø 1.59
2010
Motor
Battery pack
Battery
housing
BMC
Clutch Cap
Cable - PVC
Front Gear Housing
Left housing Chuck
Cable
Right housing
Charger housing
1
2
Prices are indexed to 1 for 2010
Components shown represent 95% of the material costs
Source: B&Q/Kingfisher 14.4V power drill component price data
Towards the Circular Economy: Accelerating the scale-up across global supply chains
21
-- Unprecedented resource price volatility. The last decade
has also seen higher price volatility for metals, food and
non-food agricultural output than in any single decade in
the 20th century.26 Higher resource price volatility can
dampen economic growth by increasing uncertainty,
discouraging businesses from investing and increasing the
cost of hedging against resource-related risks.
Figure 10: Supplies of key resources are limited, while
recycling rates for many remain low
Many resources are forcasted to run out within a relatively short period, …
Many resources are forcasted to run out within a relatively short period, ...
Remaining years until depletion of known reserves
(based on current rate of extraction)
1
3
4
Li
6.941
11
Demand-side trends. Around 3 billion people are expected to
join the ranks of the middle class by 2025.27 This represents
the largest and fastest rise in disposable incomes ever and
will occur mainly in the developing world. In addition, there
are the relatively more affluent consumers in OECD
economies: their resource footprint is a multiple of that
generated by these new middle classes. The World Bank has
described the coming upsurge in consumer demand as a
“potential time bomb”28 [Figure 9].
Be
Dramatic shift to packaged products
1.1 bn more people
Mg
24.3050
19
20
39.0983
Ca
Sc
40.078
44.95591
Rb
39
Sr
85.4678
Cs
Ti
47.867
40
Y
87.62
56
23
88.9085
57
Ba
La*
132.9054
137.327
138.9055
87
88
89
Fr
Ra
Ac --I
(223)
226.025
(227)
Cr
Mn
50.9415
51.9961
54.93804
41
V
42
43
Zr
Nb
91.224
92.90638
72
73
Hf
Ta
180.9479
Rf
105
Db
(257)
(260)
58
Lanthanides *
Actinides --I
FLOUR
(98)
75
W
Re
183.84
186.207
106
107
Sg
Bh
(263)
(262)
60
26
27
28
29
Fe
Co
55.845
58.93320
58.6934
45
46
44
Ru
Rh
101.07
102.9055
76
77
Os
190.23
108
Hs
(265)
61
Ir
NI
N
O
F
14.00674
15.9994
18.99840
20.1797
15
16
17
18
Sn
Sb
118.760
121.760
83
Au
111
Ds
(271)
63
Pm
Sm
Eu
(145)
150.36
151.964
157.25
Th
Pa
U
95
Rq
(272)
64
Gd
Hg
Ti
200.59
204.3833
Bi
208.9804
114
115
Uub
Uut
Uuq
Uup
(285)
(284)
66
Tb
158.9253 158.9253
96
Pb
270.2
113
97
(289)
67
I
126.9044
85
Po
Uus
Uuo
70
71
(292)
69
Ho
Er
Tm
Yb
164.9303
167.26
168.9342
173.04
100
(222)
118
Dy
99
Rn
(210)
117
162.50
98
Xe
131.29
86
At
(209)
Lv
Kr
83.80
54
Te
(288)
68
Br
79.904
127.60
116
Ar
39.948
36
53
84
112
65
Se
78.96
Ne
CI
35.4527
35
52
82
196.9665
In
51
114.818
Pt
94
As
74.92160
81
195.078
Cd
Ge
72.61
50
112.411
Nd
93
Ga
69.723
49
S
32.066
34
80
Pr
92
33
Ag
144.24
91
39.97376
32
79
110
(266)
P
28.0855
31
107.8682
192.217
62
Si
26.68153
Zn
65.39
48
10
C
Pd
109
Mt
30
9
12.0107
106.42
78
Ce
90
Cu
63.546
47
140.9077
232.0381 231.0289 238.0289
101
102
Lu
174.967
103
Np
Pu
Am
Cm
Bk
Cf
Es
Fm
Md
No
Lr
(237)
(244)
(243)
(247)
(247)
(251)
(252)
(257)
(258)
(259)
(262)
… while only few materials are recycled at scale
... while only few materials are recycled at scale
1
2
<1%
H
He
Current rates
of recycling
1-10%
1.00794
3
4.002602
10-25%
4
Li
6.941
11
Be
24.3050
19
20
K
21
Ca
Sc
40.078
44.95591
38
Rb
85.4678
55
39
Sr
23
Ti
47.867
40
Y
87.62
56
Cs
22
88.9085
57
Ba
La*
132.9054
137.327
138.9055
87
88
89
Fr
Ra
Ac --I
(223)
226.025
(227)
24
V
Cr
Mn
50.9415
51.9961
54.93804
42
43
Zr
Nb
92.90638
73
Hf
Ta
178.49
180.9479
104
Rf
(257)
105
Db
(260)
Actinides --I
Mo
95.94
74
W
183.84
106
Sg
(263)
59
Tc
(98)
75
Re
186.207
107
Bh
(262)
60
26
27
28
29
Fe
Co
55.845
58.93320
58.6934
45
46
44
Ru
Rh
101.07
102.9055
76
Os
190.23
108
Hs
(265)
61
77
Ir
NI
20.1797
17
18
Sn
Sb
121.760
83
Au
196.9665
111
Ds
(271)
63
Pm
Sm
Eu
150.36
151.964
157.25
U
232.0381 231.0289 238.0289
95
Rq
(272)
64
Gd
Hg
Ti
200.59
204.3833
Pb
Bi
270.2
208.9804
112
113
114
115
Uub
Uut
Uuq
Uup
(285)
65
Tb
158.9253 158.9253
96
In
51
118.760
Pt
94
As
74.92160
82
195.078
Cd
Ge
72.61
50
114.818
(145)
93
Ga
69.723
81
Nd
92
33
112.411
110
(266)
P
39.97376
32
80
192.217
62
Si
28.0855
31
Ag
Pr
Pa
F
18.99840
16
79
144.24
Th
O
15.9994
15
107.8682
Ce
91
N
14.00674
26.68153
49
97
(284)
66
10
C
Pd
109
Mt
Zn
65.39
48
9
12.0107
106.42
78
140.9077
90
Cu
63.546
47
30
8
14
Al
25
41
91.224
72
7
B
13
No data available
Mg
22.98977
39.0983
6
10.811
>50%
12
Na
5
25-50%
9.012182
Lanthanides *
RICE
Tc
95.94
59
58
RICE
Mo
74
178.49
104
25
24
8
14
Al
22
21
38
55
7
B
10.811
13
22.98977
37
6
5
100-500Years
12
37
Figure 9: A potential consumption time bomb will lead to
inevitable resource constraints
4.002602
9.012182
K
A number of underlying observations suggest that both these
effects—spiralling prices and unparalleled volatility—are likely
to continue in the future, making it all the more important that
substantial value creation opportunities are achieved by
adopting circular economy business models. This is because
the drivers of these changes—demand- and supply-side
trends—are bound to continue.
He
50-100 years
1.00794
Na
The drivers of these changes
2
5-50 years
H
(289)
67
(288)
68
S
32.066
34
Se
78.96
52
CI
35.4527
35
Br
79.904
53
I
126.9044
Po
(209)
Lv
85
At
(210)
(222)
Uus
Uuo
70
71
(292)
69
Ho
Er
Tm
Yb
164.9303
167.26
168.9342
173.04
100
Rn
118
Dy
99
Xe
131.29
86
117
162.50
98
Kr
83.80
54
Te
116
Ar
39.948
36
127.60
84
Ne
101
102
Lu
174.967
103
Np
Pu
Am
Cm
Bk
Cf
Es
Fm
Md
No
Lr
(237)
(244)
(243)
(247)
(247)
(251)
(252)
(257)
(258)
(259)
(262)
Source: Professor James Clark, Green Chemistry, The University of York
1.8 bn more middle-class consumers
Much greater waste at end of life
$$$
$
Food: caloric
consumption
+ 24%
Food
spending
+ 57%
Packaging
+ 47%
End-of-life
materials
+ 41%
Source: World Bank, Ellen MacArthur Foundation circular economy team
Supply-side trends. Professor James Clark from the
University of York in the UK has analysed current recycling
levels across a number of elements of the periodic table and
suggests that the pressure on finite resources is likely to
remain high as we are unable to keep up the high quality of
the existing stock of materials in use due to recycling leakage
[Figure 10]. According to Clark, elements that may be
depleted within five to fifty years include gold, silver, indium,
iridium, tungsten and many others that are vital for industry.29
22
Towards the Circular Economy: Accelerating the scale-up across global supply chains
At the same time, the average resource is forecast to face
steeper production cost soon— despite recent
improvements in unconventional fossil fuels. This effect is
already visible with the costs of exploration and mining new
resources have substantially increased [Figure 11]. Many
future mining reserves are located in areas with high political
risk, too, and potential disruption in continuity of supply could
lead to further volatility in resource prices. As the investing
world began buying commodities to balance the cycles of
purely financial assets in their portfolios, the correlations
increased between commodity prices and the price of oil as a
convenient benchmark or index. This holds true not just for
metals and mining products, but also for food categories
such as maize, wheat and rice as well as beef. These links
reflect increasing global integration and raise the risk that
shortages and price changes in one resource could rapidly
spread to others. Furthermore, the impact of a sharp rise in
demand for resources on the environment could restrict
supply. Greater soil erosion, depletion of fresh water reserves,
deforestation and other environmental concerns are
tightening constraints on the availability of resources, and are
likely to trigger future price increases.30
Figure 11: Replenishing reserves is increasingly difficult
and expensive
While resource pressures will directly affect the economics of
many materials-based product and service businesses, there
are a host of macroeconomic risks that could potentially
create additional volatility. In the 2012 edition of the World
Economic Forum’s Global Risks report, many of the abovementioned risks are considered to be of highest urgency (the
water supply crisis, food shortage crisis, rising emissions,
extreme volatility in energy and agricultural prices), as each
was rated among the top five of fifty global risk in terms of
likelihood or impact or in the case of water crisis, both31
[Figure 12].
Against this backdrop, the rapid scale-up of circular economy
principles could reduce pressure on resources significantly
and avert adverse effects on the economy overall.
All metal and mining materials; latest data available to 2010.
SOURCE: BHP Billiton; US Geological Survey; MEG Minerals 2011
1
Figure 12: The evolving risk landscape—resourcesrelated risks are among the most urgent
Favourable alignment of enablers
Real and (to a lesser extent) financial market prices, price
volatility and environmental reports tend to indicate that the
pressure on natural resources is intensifying. At the same
time, important circular economy enablers are coming into
place simultaneously. They belong to different categories but
can all accelerate adoption and scale-up of circular economy
principles by reducing costs (both for start-up and operations)
and increasing customer and market acceptance of more
circular business models.
Consumer preferences are shifting away from ownership
Today’s users are displaying a preference for access over
ownership, i.e. services over products. This is important
because young urban and rural consumers’ lifestyle choices
in this decade have the power to shift the economic model
away from the linear system. The new bias may have
originated in necessity, driven by the depressed economy
and widespread youth under or unemployment. How
pervasive the shift will become remains to be seen, but a new
model of consumption seems emergent, in which consumers
embrace services that enable them to access products on
demand rather than owning them, thus becoming users.
Collaborative use models that provide more interaction
between users, retailers and manufacturers are seeing
greater uptake (see Box 2). The implications of this shift to
different business models (performance-for-pay models, rent
or leasing schemes, return and reuse, for example) are
profound in many ways:
-- Higher asset productivity. The use of assets can be
increased as most of the sharing models rely on greater
utilization of previously under-used but highly valued
assets, which drives down the associated operating costs
per unit of use.
SOURCE: Global Risks 2012 , World Economic Forum
-- Higher asset availability and quality. These collaborative
use models also allow service providers to reap benefits
such as increased longevity and lower maintenance costs,
improving their margin or cost-competitiveness. This in
turn also drives down unit costs per use.
-- Fewer information blind spots. Technologies such as
radio-frequency identification (RFID, discussed in the next
section) enable better tracking of embedded materials and
components, which reduces costs and consequently
increases the margin for revalorizing products at the end of
their current use.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
23
Box 2: The ‘sharing economy’ and its
implications for the circular economy
The sharing economy is a reinvention of traditional market
behaviours towards collaborative consumption models.
Rather than simple consumption, the sharing economy is
founded on the principle of maximizing the utility of assets via
renting, lending, swapping, bartering and giving—facilitated
by technology. The sharing economy provides the ability to
unlock the untapped social, economic and environmental
value of underutilized assets.32
About a decade ago, companies such as Zipcar started to
capitalize on the idle capacity of cars (unused in the US for an
average of 23 hours a day) by developing platforms that
charge for usage. Today there are literally hundreds of ways
one can share different kinds of assets: space, skills, stuff
and time.
The sharing economy is driven by three primary benefits:
economic—more efficient and resilient use of financial
resources; environmental—more efficient and sustainable
use of resources; and communal—deeper social
connections among people. All of these are enabled and
scaled by technology platforms. Three principal systems
operate within the sharing economy and collaborative
consumption:
-- Redistribution markets reallocate items or services no
longer required to someone or somewhere where they are
needed. Examples include eBay (auction site) or Craigslist
(local classified ads).
-- Product service systems allow members to pay for the
benefit of using a product without needing to own it
outright. Examples include Zipcar, RelayRides and City
CarShare for mobility services, equipment rental from
Getable and peer-to-peer (P2P) high-end household
rentals from Snapgoods.
-- Collaborative lifestyles platforms allow people to share
and exchange less tangible assets such as time, skills,
money, experience or space. Examples include Skillshare
for P2P learning, Airbnb for offering accommodation, and
TaskRabbit for outsourcing small jobs and tasks to others
in their neighbourhood.
In addition to these three systems, there are a variety of
related models of collaborative production, transaction,
investment and marketplace creation. Well-known examples
include Wikipedia (crowdsourced online encyclopaedia) and
Kickstarter (crowdfunding).
All of these systems are enabled by four key principles: trust
between strangers, belief in the effective management of
common resources, the existence of idle capacity and the
build-up of a critical mass of users, customers, consumers,
producers and/or members.
24
Towards the Circular Economy: Accelerating the scale-up across global supply chains
The sharing economy is conceivable in nearly any sector of
society and corner of the globe. Sectors that have
experienced robust traction include accommodation,
transportation, tourism, office space, financial services and
retail products. Areas where significant growth is expected
include P2P car sharing, errand marketplaces, product rental
and P2P and social lending. The sharing economy continues
to grow at almost breakneck speed. It is estimated that in
2013, more than US$ 3.5 billion in revenues will be generated
from transactions in the sharing economy in the US.33 While
the market size is still small, investors are optimistic about the
future growth of these business models (e.g. the P2P financial
lending market is estimated to reach US$ 5 billion by the end
of 2013, and car-sharing revenues in North America alone
could hit US$ 3.3 billion by 2016).34
In September 2012, Seoul’s Metropolitan Government
announced a new initiative: “Sharing City Seoul.” This
includes 20 sharing programmes and policies for generating
or diffusing “sharing city” infrastructure. The government
regards “sharing city” as a new alternative for social reform
that can resolve many economic, social, and environmental
issues of the city simultaneously by creating new business
opportunities, recovering trust-based relationships, and
minimizing wastage of resources, as sharing allows the
community to gain more benefits with fewer resources, since
it enhances the usefulness of resources. Therefore, the
government can provide more services to citizens with a
smaller budget. For example, a 492-vehicle car sharing
service is being introduced together with selected
government parking lots and municipal buildings being open
to the public during off-hours and idle days. In addition,
students who need a room can be connected to senior
citizens who have extra rooms, and more.35
Benefits within the circular economy model stem from
increased resource productivity, greater ability to keep track
of products, components and materials, which increases the
opportunity for profitable revalorization at the end of the
respective use cycle as well as allowing suppliers of products
and services to capture the benefits of improved circular
designs.
Socio-demographic trends make the benefits easier to
capture
For the first time in history, over half of the world’s population
resides in urban areas. By 2020, urban populations are
expected to rise by a further 20% to over 4.2 billion, 80% of
them in developing countries.36 With this steady increase in
urbanization, the associated costs of many of the assetsharing services (see Box 2) and the costs for collecting and
treating end-of-use materials are all able to benefit from much
higher drop-off and pick-up density, simpler logistics, and
greater appeal and scale for service providers. Centralized
use should mean that reverse logistics—like the logistics of
new product delivery—becomes more efficient and more
cost-effective. The collection of household waste, as one
example, will be cheaper due to shorter collection distances,
and more efficient due to more frequent collection (increasing
the collection rate and reducing waste leakage). Integrated
systems are an ideal solution for recovering materials in urban
areas, leveraging short transport distances and high
population densities.
An example of this is The Plant, Chicago, a vertical aquaponic
farm growing tilapia and vegetables that also serves as an
incubator for craft food businesses and operates an
anaerobic digester and a combined heat and power plant,
with the goal of going off the grid in the next one or two years.
It serves as a good example where the discarded materials
from one business are used as a resource for another—
industrial symbiosis. This vertical farm and food incubator
plans to house artisan food businesses, including a beer
brewery, bakery, kombucha (fermented tea) brewery,
mushroom farm, and a shared kitchen. The spent grains from
the brewery are fed to tilapia fish, while solids from the tilapia
waste are fed to the mushrooms. The farms are much nearer
to urban centres, so they promote local sourcing and the
supply of fresher food. The shorter transportation distances
reduce costs, energy consumption and carbon footprint.37
Advances in technology create ever greater
opportunities to accelerate the transition
Information and industrial technologies are now coming
online or being deployed at scale, which support closing the
reverse loops. These advances allow better tracking of
materials, more efficient collaboration and knowledge
sharing, and improved forward and reverse logistics setups,
i.e. initial product design and material innovation seamlessly
joined up with subsequent processing of secondary material
streams.
-- Radio-frequency identification (RFID). It is critical to the
success of circular business models to have technology to
track the whereabouts and condition of materials,
components and products as this reduces processing
cost. The use of RFID has great capacity to boost
materials reuse. Using RFID technology in sorting apparel
and textiles at the end of their lives, for example, will enable
the cascade of each type of textile to more suitable and
higher-value applications than is the case today. Wider
adoption of RFID could be facilitated by falling technology
prices.
-- The ‘Internet of everything’. Cisco, the American network
equipment company, says there are already more ‘things’
connected to the Internet than people—over 12.5 billion
devices in 2010 alone. This number is predicted to grow to
25 billion by 2015, and 50 billion by 2020. Connections
today come in the form of home and office IT devices such
as PCs and laptops, mobile smart devices and new
connected business and manufacturing devices. In the
future, everything is likely to be connected, from container
ships and buildings to needles, books, cows, pens, trees
and shoes. This interconnectedness will enable tracking
efficiency that was previously inconceivable. In the city of
Nice, for instance, Cisco and the Think Global alliance are
showcasing an Internet of Everything concept called
Connected Boulevard. This initiative has equipped the city
with hundreds of different sensors and detecting devices
that capture data from daily life through the city’s hybrid
infrastructure linked up via a Cisco wi-fi network. The data
are processed into real-time information and converted
into intelligence with the help of context-aware location
analytics before being disseminated to multiple city
services. The city can expect improvements in traffic flow,
less pollution, and could potentially save 20 to 80 percent
in electricity bills by calibrating street light intensity with
pedestrian and traffic peaks as well as real-time weather
conditions such as fog and rain.
As Neil Harris, Head of Sustainable Business at Cisco
EMEA, envisions: “The Internet and the new wave of
capabilities that the information and communication
technology industry is building will provide a critical set of
business capabilities that are essential to the robust
expansion of circular economy-inspired business models.
The Internet of Everything will expose the digital ‘life-story’
of materials, components and products that will allow
seamless/automated reintegration of materials back into
economic systems, addressing concerns around
transparency, ownership, quality and value. In addition, the
data collected and knowledge acquired will pave the way
for even greater innovation, essentially further accelerating
stakeholder interest in the circular economic opportunity.»
Rachel Botsman of Collaborative Lab (and World
Economic Forum’s Young Global Leader) said during the
Circular Economy 100 Annual Summit: “Technology
fundamentally creates two things: it basically creates the
efficiency to match millions of haves with millions of wants
in ways that have never been possible. And equally
important, it creates a social glue of trust, meaning
exchanges can happen directly between two strangers,
where we used to trade and exchange directly through
institutions.”39
-- Partners for revalorization. Technologies that facilitate the
identification of potential partners for revalorization to
generate end-of-use benefits from liquid markets are
essential to identify the best arbitrage opportunity (e.g.
trying to sell a used product versus component harvesting
and reintegration into the next product). This makes costs
that were previously fixed scalable. Setting up circular
ventures (via cloud computing, for example) is one avenue;
another is to avoid premature obsolescence (such as
encapsulating the innovation into software rather than
hardware via exchangeable printed circuit boards).
-- Advanced manufacturing and processing technologies
(especially in reverse cycle capabilities) open up completely
new paradigms for adopting circular business models at
lower cost. For example, 3D printing substantially reduces
waste in the manufacturing process itself, allows the
reduction of product inventory by moving to make-to-order
from what are often make-to-stock systems, and is widely
used in the rework of spare parts, where otherwise the
larger asset would have ceased to be useful (e.g.
overhauling its mechanical components).40
-- Advanced reverse treatment technologies (e.g.
anaerobic digestion, cultivating waste-eating microbes and
algae in biofactories, filtering proteins out of wastewater
from breweries) enable dramatic improvements in the way
value is extracted from today’s biological waste streams.
Opportunities also exist to combine multiple waste
streams (CO2, heat, waste water, nutrients) into advanced
agro-manufacturing systems. Valorization of CO2 as a
resource has seen substantial improvements in economic
viability over recent years as primary research is being
translated into applications. Many technologies are
expected to be commercialized in the next five years,
including liquid fuel from bioenergy and CO2, polymers
using CO2 as a carbon source, decarbonization of cement
production, and much more.41 Some World Economic
Forum’s Technology Pioneers are advanced in these areas
such as Novacem, carbon negative cement, and Joule
Unlimited, biofuel from CO2.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
25
New packaging technologies and systems that extend
food life and minimize packaging waste (e.g. fully
compostable mycelium-based packaging from another
Technology Pioneer, Ecovative) and other material
innovations are coming online.42 All of these emerging
technologies could contribute to increasing the value
circular business models capture, and reduce unit costs if
scaled up. Textile innovators such as Worn Again are
developing processes to recapture polyester and cellulose
from cotton which can be reintroduced into the polyester
and viscose supply chains. It is expected that up to 99.9%
of the polyester and available cellulose will be recaptured
and returned as resources into these supply chains.43
Governments and regulators are mobilizing
Governments around the globe have started to provide
positive stimulus and rewards for the adoption of circular
business models. The higher prices for linear end-of-use
treatment options (particularly landfilling and energy recovery)
are increasing the arbitrage opportunities of alternative
reverse options. Under the Waste Framework Directive, EU
member states have increased landfill costs for discarding
construction and demolition waste (among other measures),
which has effectively boosted the reuse and recycling rate of
concrete, timber, and other construction materials, as well as
improved construction processes to reduce waste.44
Governments are taking a more active stance to enable and
actively promote migration towards circular setups at a
regional level, including Japan and China (see Box 3).
The common motivations behind these shifts are heightened
concern over resource constraints and increasing awareness
of the economic and environmental benefits of the circular
economy. The European Commission’s manifesto for a
resource-efficient Europe issued in December 2012 begins:
“In a world with growing pressures on resources and the
environment, the EU has no choice but to go for the transition
to a resource-efficient and ultimately regenerative circular
economy. Our future jobs and competitiveness, as a major
importer of resources, are dependent on our ability to get
more added value, and achieve overall decoupling, through a
systemic change in the use and recovery of resources in the
economy.”
The manifesto calls for stakeholders to encourage innovation
and investment, adopt smart regulation and standards,
abolish harmful subsidies and promote circular product and
service designs, including the potential use of a ‘product
passport’. It also urges the integration of resource
management into wider policy areas and setting goals and
performance indicators for achieving a resource-efficient
economy and society by 2020.45
Japan focuses its efforts on resource management using a
comprehensive set of regulations on waste management.
The country has had significant success in reducing waste
and improving recycling rates (e.g. 98% of metals are
recycled and only 5% of waste goes to landfill). In China, the
recently enacted 12th five-year plan (2011 - 2015) for
economic and social development suggests continuous
implementation and further development of the circular
economy with the ‘Circular Economy Promotion Law of the
People’s Republic of China’ (see Box 3).
Box 3: Regional examples of accelerating the
circular economy
Japan
Japan has always lived with natural resource scarcity due to
geological and geographical limits.46 Domestic resource
extraction for energy is cost prohibitive, leading the country to
depend on oil imports for its energy use. The oil crisis of
1970s and its effects on the world economy forced Japanese
policy makers to rethink the county’s dependence on oil for
growth and sustainability.
Japanese circular economy efforts followed a three-pronged
approach. The first consisted of structural adjustments to
reduce dependency on oil as a single energy source, and
optimize industrial structure to improve the efficiency of
energy utilization within industries. The second step involved
legislation for environmental policies, establishing a
comprehensive legal system, regulating waste management,
and standardizing the approach to addressing violations. The
third was increasing societal participation through education
and public awareness campaigns.
Numerous policies and laws implemented since the 1970s
have advanced the circular economy in Japan, but the period
since 2000 has seen the greatest progress in legislation.
Devised around the concept of ‘establishing a sound
materials-cycle society,’ Japan’s system of policies focuses
on waste management and resource depletion. Examples
include the Law for the Promotion of Efficient Utilization of
Resources, ratified in the year 2000 and aimed at minimizing
waste by producers and consumers alike. The law was
described as “epoch-making and unprecedented in the
world,” and covered the entire product life span from
upstream to downstream. The Law on Re-utilization of End of
Life Automobiles, which came into force in 2002, also had
significant implications. Everyone who buys a new vehicle
must pay a recycling charge at the time of purchase. Money
is collected and kept until the vehicle comes to the end of its
life to be disposed. All dealerships and repair shops act an
end-of-life-vehicle collectors to whom final users turn in their
vehicles, and dismantlers/ shredders act as recyclers of
end-of-life vehicles.
Japan’s materials flows are closely tracked with a variety of
metrics and resource types, including regularly updated
Sankey diagrams providing an overview of flows, target setting
and tracking, measuring rates of cyclical use, reduction and
disposal (for biomass, non-metal minerals, metals and fossils).
The AEHA (Association for Electric Home Appliances) has
devised elements of a product passport for electric home
appliances covering plastic parts with a mass of 100 grams,
standards and markings to improve ease of disassembly and
separation, specific chemicals requirements and labelling,
compact rechargeable batteries, and container packaging.
This three-pronged approach has been hugely successful.
Japan’s recycling rate for metal is 98%, and is also high for
other materials. In 2007, only 5% of Japan’s waste went into
landfill. The majority of electronic appliances/electrical
products are recycled, and up to 89% of the materials they
contain are recovered. As a rule, recovered materials are used
to manufacture the same type of products—a closed-loop
system in action, in a genuinely recycling-based economy.
The idea of the circular economy is also well embedded in
Japanese education and culture. This will doubtless ensure
that Japan continues to be one of leading nations in this field.
26
Towards the Circular Economy: Accelerating the scale-up across global supply chains
China
Facing significant natural resource consumption,
environmental degradation, and resulting public frustration,
China’s government has considered ecological
modernization, green growth, and low carbon development,
with a national circular economy strategy.47 The leadership
has developed a 50-year plan to address sustainable growth
objectives and challenges. Important steps include the
passage and implementation of the Cleaner Production Law
in 2003, the commitment of US$ 1.2 billion in science/
technology investment for sustainable development by the
Ministry of Science and Technology and adopting the Circular
Economy Promotion Law in 2009, which outlined national
plans for safe urban municipal solid waste treatment, energy
savings and emissions reduction.48
To demonstrate the efficiency and applicability of these plans,
the state has made substantial investments in circular
economy-oriented pilot projects, including the application of
clean production techniques in specific sectors, and
municipal and regional eco-industrial developments.
Most circular pilot project cities have met or exceeded the
targets set. Beijing has achieved a 62% reduction in energy
consumption per GDP in 2010, a 45% increase in the rate of
treated wastewater recycling, and a 45% reduction in
consumption per capita from 2005. Other cities such Dalian,
Shanghai, and Tianjin have attained more modest
improvements so far, but trends are similar.
China seems committed to the circular economy approach,
and is regulating and investing accordingly. The next steps for
Chinese government to aid the legitimacy of economic and
environmental decisions concerning resource use and trade
include the development of a circular-economy-oriented
indicator system (e.g. emergy indicators taking into account
all available energy input directly or indirectly required to
generate a product).
Europe
It is widely recognized in Europe that the prevailing linear
model of economic growth founded on resource
consumption and pollutant emissions is unsustainable.49,
Although Europe has been a standard-bearer of
environmental consciousness, the global economic crisis,
soaring commodity prices and growing awareness of the
human impact on the environment have pushed the circular
economy agenda into mainstream policy debate.
In Europe today, circular economy measures can be found in
various environmental and economic policies. The EU has
established resource-related policy goals extending as far
ahead as 2050 as part of its Europe 2020 strategy. In many
cases, these goals are accompanied by relevant targets and
indicators to track implementation.
projections by 2020. Regarding air pollution, the EU has
generally made good progress towards its 2020 emissions
targets set by the Thematic Strategy on Air Pollution. Waste
generated per capita should be in absolute decline by 2020
according to another non-binding objective. A further
waste-related objective for member states is to reduce
landfilling of waste to close to zero by 2020. An extrapolation
of the trend points to a decline from 179 kg per capita in 2011
to 114 kg per capita in 2020. Achieving the target for nearzero landfill would thus seem to require a radical change in
waste management practices. Furthermore, a potential
obstacle to meeting the SCP objectives is that Europe leads
the world in energy recovery mixed waste incinerators, with
about 400 units. Although some are over-dimensioned and
recycling is diminishing their inputs, mixed waste incinerators
are the end-point of an entrenched linear supply chain (with
some metals recovery) that diverts products and materials
away from higher-value reverse loops directly to the lowest
value use in the reuse hierarchy, energy recovery.50 Despite
incineration over-capacity, its use is still growing in many
economies ranging from China to the UK, where there is
pressure to transit away from landfills.
In the Environmental Indicator Report of 2012, the European
Environmental Agency undertook its first analysis of Europe’s
progress in achieving a more sustainable, regenerative
economy, using six key indicators to assess resource
efficiency and a further six addressing ecosystem resilience.
The findings here indicate mixed performance. Analysis does
appear to suggest that Europe has made significant progress
in improving resource efficiency, air quality, water use and
recycling. Preserving ecosystem resilience and biodiversity is
still falling short of the EU targets, however.
While status quo lock-in is a fact of life during any transition
period, the linear economy lock-in is weakening under the
pressure of several disruptive trends. As discussed, higher
resource prices and volatility are here to stay. Businesses are
in search of a ‘better hedge’ against potential problems in
obtaining the resources they need. Many innovators and
rapid transformers will be able to take advantage of these
disruptions as growing profit pools. Enterprises that extract
value from resources currently being wasted will likely reap
higher rewards, while take-make-dispose businesses will
likely find their economies of scale less powerful in the
competitive race than in the past.
With pressures mounting and a well-aligned ability to act in
many areas, many participants at the circular economy
session during the World Economic Forum’s 2013 Annual
Meeting and the Young Global Leaders Taskforce felt strongly
that: “Surely the time to act is now”
The Environmental Indicator Report of 2012A identified a total
of 63 legally binding targets and 68 non-binding objectives
across nine environmental policy areas that the EU member
states have to meet. Many of the binding targets are set for
2015 and 2020, and address energy, air pollution, transport
emissions and waste. The great majority of non-binding
objectives are set for 2020, with sustainable consumption
and production (SCP) and resource efficiency playing a larger
role, along with biodiversity and land use.
For example, the EU has a non-binding objective to cut
energy use to levels 20% below business-as-usual
Towards the Circular Economy: Accelerating the scale-up across global supply chains
27
28
Towards the Circular Economy: Accelerating the scale-up across global supply chains
3. What are the
leakage points?
Closing the loop at scale will mean addressing
the leakage of global, fragmented materials and
product flows out of a truly circular economic
setup. Many linear lock-ins need to be
overcome during the transformation. But none
are insurmountable.
It is high time to tackle the major obstacle to implementing
the circular economy at scale: addressing systemic leakages.
Given the circular economy’s potential for resource arbitrage,
it should take off by itself. However, it has not done so as a
result of certain market failures and lack of mechanics,
leading to significant leakages. Even sceptics recognize the
need to eliminate the economic waste associated with a
single-use economy, and to free an ever ‘hungrier’ global
economy from increasingly inelastic resource markets.
While there are many different ways to frame and structure
leakages, the most frequently cited and most tangible to
corporate decision makers is referred to as geographic
dispersion, with dispersed manufacturing sites and
suppliers. This is compounded by the complex, multi-layered
bills of materials (BOMs) of today’s products, reflecting
increased materials complexity and proliferation. These
issues are joined by a long list of barriers stemming from
‘linear lock-in’: the engrained structures that have anchored
themselves around our linear-based growth models.
‘Leakages’ have different meaning for biological and
technical nutrients. Biological nutrients represent a large
portion of materials flows globally, and ‘leakage’ of those
materials is often deliberate and desirable. For example,
bio-materials are returned to the soil as nutrients and are part
of a continuous flow rather than a closed loop. Bio-cycle
materials experience a different type of leakage: the loss of
opportunities to maximize the cascaded usage period of the
materials and the inability to incorporate the nutrients back
into the biosphere due to contaminations. For technical
nutrients, ‘leakage’ refers to the loss of materials, energy, and
labour as products, components, and materials are not or
cannot be reused, refurbished/remanufactured, and
recycled, respectively.51 Because of this different solutions
are often used to solve leakage for the bio and technical
cycles. Bio-cycles focus on defining leakage through
cascades while technical cycles focus on closing or
continuing loops [see Figure 2].
Losses due to geographic dispersion
Even small appliances like an electric toothbrush contain
around 40 small components produced using multi-tier
supplier networks, with dozens of sites spanning the entire
globe. A more complex power tool from B&Q/Kingfisher is
assembled from up to 80 components in a three-tier supplier
system comprising more than 14 raw materials, extending
across different geographies [Figure 13].52 The rise of
globalization and product modulation has created global
economic growth by maximizing the economic arbitrage of
materials and production costs. However, the loop for each of
the components, sub-components and materials should
eventually be closed. Geographic dispersion will need to be
examined at very granular levels to close the loops because
of how very spread out the different activities are along the
value chain.
Figure 13: Simplified bill of materials (BOM) explosion:
Power drill
Usage
Product
Production
Component
Subcomponent
Raw material
Steel
Power drill
Gear
body
Motor
Copper
Casing
Black metal
Switch
Grip housing
ABS
TPE
Chuck jaw
Black metal
Grip
Chuck key
Chuck
Chuck base
SOURCE: Expert interviews
Towards the Circular Economy: Accelerating the scale-up across global supply chains
29
All the arbitrage opportunities and models described in the
previous chapters are based on an implicit set of
assumptions: that materials, components or product loops
can be closed, both physically and in terms of quality, to
create a balanced materials flow at a steady state. Successful
and profitable examples do exist at a company level. But at a
global level, supply chain setups are increasingly complex
and fragile. This is the result of the world’s ever growing
global trade volume and value,53 as well as the shift of
manufacturing from industrialized countries to emerging
economies has created increasingly complex and fragile
supply chain setups. In the interviews the team conducted for
this report, geographic dispersion was one of the most
frequently cited points of leakage, and one of the hardest to
overcome. So what are the options for systematically
identifying leakage points?
A taxonomy of current supply chains and loops
To be able to make some broad observations across the
myriad of supply chains that make up our global, trade-based
economy today, it is helpful to simplify the discussion by
examining a few archetypes based on the concept of
geography. Because in a circular economy, geography
matters. As in nature, the archetypes underlying our trade
interactions are stunningly uniform. The value of products
whose first use cycle has expired is still subject to distance
and transport costs at present. Across the industries
analysed so far, this study identified—in addition to the typical
linear supply chain—three other archetypes of circular or
partly circular supply chain setups. These will be termed
loops, as products ideally circle back after end of use [Figure
14]. Each category of materials loop has its own types of
leakage points, and therefore calls for different enablers to
capture the arbitrage opportunities to close it. These
archetypes can later be used to provide a search and
prioritization approach for identifying how to turn these
leakage points into circular arbitrage opportunities.
Figure 14: Archetypes of supply chains and loops
China1 Europe2
1
Closed
global/
local/
regional
loop
2
Desso, a global carpets, carpet tiles and sports pitches
company, designs many of their products with the aim
of closing the loop by using materials that are safely
recyclable. The polyolefin-based layer of the DESSO
EcoBase® carpet tile backing is 100% recyclable in
Desso’s own production processes, while the Nylon
6-based top yarn can be functionally recycled into new
Nylon 6 over and over again. This in turn can be
transformed into 100% regenerated nylon yarn by yarn
supplier Aquafil. The company has been developing a
take-back programme since 2008, collecting end-ofuse carpet tiles to recover materials from old carpets,
which would generate significant materials savings once
scaled up.55
Description
Point of use Regional closed loop
Products are mostly maintained in countries where usage takes place
Some end-of-use/pre-owned products are collected,
re-engineered/remanufactured regionally, and sold into local markets
Point of use
Case examples
Ricoh used plastics
return
H&M respinning of
fibres for jeans
Airplane jet engines for
reuse
SAB Miller bottled beer
distribution
Desso closed-loop
carpet tile
End-of-use products or components are collected and returned
to manufacturing facilities in the same regions to be used in the
production of the same or similar products
Renault engine and
gearbox refurbishment
For some valuable products, end-of-use materials are collected
and sold to secondary markets, where material flows/end-of-use
are not regulated, resulting in significant leakages
Brightstar used mobile
phone distribution
End-of-use products are discarded in landfills or incinerators
of countries where consumption takes place
Relevant for 80% of
materials used in
FMCGs
B&Q power drill repairs
Manufacturing
Point of use
3
-- Closed regional and local loops are intuitively the most
attractive as they are based on close proximity between
points of production and use. Supply chain logistics can
be organized at relatively low transport costs and
without having to cross international borders.
Returnable glass bottle systems are a signature
example of closed regional and local loops, and give
bottling companies full control of their materials flows.
For instance, South African Breweries (SAB), the local
subsidiary of SABMiller, currently sells more than 85%
of volume in a closed loop returnable bottle system. If
this were converted to a one-way packaging and
distribution system, the country’s glass output would
have to be doubled just to cater for the increase in
demand for beer bottles. Modeling shows that in beer
beverage packaging, the economics of these return
systems are far superior to those of one-way systems,
even compared with 100% recyclable PET bottles
[Figure 15, for assumptions, see Appendix 1].54
Point of use Global closed loops
End-of-use products or components are collected and returned
to the countries where they were manufactured to be used in
production of the same or similar products, largely at recycled
material level
Manufacturing
Manufacturing
Partially
open local/
regional
loop
-- Closed geographical supply loops benefit from large
quantities of material and components being returned from
their point of use to the point of manufacture to reduce the
amount of virgin material or component input required.
Open
cascade
I:CO sale of used
clothes
Manufacturing
Point of use
4
1
Linear
Manufacturing
Or other manufacturing countries;
2 Analoguous to the US and other importing regions
Source: World Economic Forum and Ellen MacArthur Foundation circular economy team
30
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Construction materials represent further potential for
closed regional and local loops. These are generally
manufactured and used locally or regionally. Leighton
Holdings, a large Australian company that is partially
focused on construction, procures raw materials for
their pre-fabricated (precast) concrete from Asia (e.g.
from China, Japan, Thailand and the Philippines),
manufactures the products, and then uses them in
those regions.56 Options for closing the loop include
local reuse of end-of-use precasts or functional recycling of the raw materials, such as steel and concrete, in
new products. This would allow the company to reduce
the amount of new raw materials required.
Figure 16: Excess capacity in containers returning from
the US or EU to China is reflected in lower freight rates
Europe
Load factor1
Percent
Number of bottles
Indexed to
returnable
Weight
kg
glass bottles
Description
One-way glass bottles
Used once
Weight 210 g
40
One-way PET bottles
Used once
Weight 19 g
40
Material cost
8.40
Container rate2
1,000 US$
-42%
cycle2
6.29
1
54
-36%
9.8
1.9
Import
2
-57%
4.2
3.3
Export
Import
Load factor is the ratio between cargo demand and available capacity.
Container rate is based on 20ft container shipped to/from either central or northern China
SOURCE: Drewry Container Freight Insight 07-2013, 05-2013
Returnable PET bottles
5 cycles1
Weight 26 g
Returnable glass bottles
40 cycles1
Weight 281 g
Cost per
US$
85
86
57
-34%
Figure 15: The returnable glass bottle system is an
inherently circular business with attractive economics
Scenario in Europe
US
China
8
1
Other cost2
0.77
0.21
0.28
2.82
1.66
0.35
-97%
-94%
Reuse of packaging reduces costs and
material consumption
Cost for collecting (storage cost at store), cleaning, and transport by truck (150 km on average)
2
Incremental costs from reverse cycle: Material costs include virgin PET costs US$ 4.59/kg, rPET
costs US$3.67/kg, and glass costs US$ 0.75/kg; other costs include store collection and washing
cost for returnables is US$ 0.015/bottle; returnable transport costs are US$ 0.074/ bottle for PET and
US$ 0.12/bottle for glass
1
Source: Expert interviews; McKinsey Interview, Ellen MacArthur Foundation circular economy team
-- Closed global supply loops have been the rare exception
so far. Understanding them is a particular interest for this
report. To make them viable, global supply loops today
often require high-value goods, such as airplane jet engines
for reuse. Due to low-cost transport, traditional recycling
can be global, representing the outer loops of the circular
economy with the lowest value arbitrage opportunities.
One industry-wide example of a balanced global materials
flow between point of production and point of use is the
global secondary fibre stream for paper and cardboard
production. This fibre stream is used in Asia to make
packaging materials for export products because it is less
expensive to use recovered rather than virgin fibres.57
Creating global loops can generate attractive benefits, as
ever more companies are beginning to understand. A few
are starting to set up systems of this kind. Ricoh, for instance,
expects to capture an arbitrage opportunity by shipping used
plastic residues from their materials recovery sites in Europe
and around the world back to their component manufacturing sites in Asia for use in manufacturing new components.58
Given the current price differences between virgin and
recycled materials (polypropylene, for example) and the low
rate of Asia-bound container shipping, Ricoh’s estimated
materials cost savings could be up to 30%.59 As return
containers from the US and Europe to China are frequently
empty, global reverse cycles could be organized at marginal
transport costs [Figure 16]. H&M collects end-of-use jeans
and sends them to their supplier in Pakistan to be processed,
respun, and made into new jeans.60
The economics of such arbitrage opportunities are expected to improve as the cost of raw materials increases,
alongside the efficiency of ocean transport and logistics
systems (driven by economies of scale). However, good
standards for materials reuse need global support. The
global regulatory and customs contexts are a case in point.
For example, China has ratified the Basel Convention and
banned the import of all e-waste either for direct reuse or
recycling.61 Other regions/countries, including the EU and
Japan—also parties to the Basel Convention—ban exports
of e-waste, too. However, large volumes of e-waste still
move from the US, EU, Japan and other countries to China
via various routes (Hong Kong still allows the import of
second-hand EEE and e-waste with an import license, for
example).62 In 2010, the total volume of e-waste imported to
China was estimated at between 9 - 11 million tonnes.63 The
illegal trading of e-waste makes it very difficult to track
materials flows and maximize materials recovery.
-- Partially open geographical loops have a supply chain
that is partially linear (from raw materials extraction to
manufacturing of the finished product, for example),
followed by regional or local closed loops for maintenance
and refurbishment, or the harvesting of local components.
Good examples can be found for technical products.
Renault, for instance, has established regional remanufacturing plants for their gearboxes and engines, in which
components are remanufactured, and then integrated back
into refurbished gearboxes and engines. Many of these
components are originally produced in a multi-tier linear
manufacturing network: their footprint has increasingly
shifted to Asia. This hybrid of a linear and circular business
model already generates attractive, circular arbitrage
opportunities. At their Choisy plant, Renault reuses 43% of
the carcasses, while 48% are recycled in the company’s
foundries to produce new parts, and the remaining 9% are
valorized in treatment centres.64 Caterpillar, Ricoh and
Canon operate similar partial supply loops, in which
products are manufactured across global supplier
networks and then maintained, repaired, refurbished and
redistributed locally for the respective local markets.65 The
circular benefits of this stem from the prolonged use of
materials and products and the offsetting of virgin materials
input and embedded energy, labour and capital expenditure.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
31
-- Geographically open cascades move products,
components, and materials—after their initial usage
cycle(s)—to different markets or market segments,
frequently in other regions, for secondary use. Today,
some 30 to 40% of worn clothing collected in the US and
Europe is sold second-hand overseas.66 The US alone
exports worn garments with a total value of over US$ 12
billion p.a., mainly to Central and South America, China
and Sub-Saharan Africa.67 Its trade in second-hand mobile
devices and other consumer electronic equipment is also
vibrant. The US exported a total value of US$ 1.5 billion in
2011 (or 760,000 tonnes) of used electronic products for
refurbishment or recycling, mainly to Mexico, India, Hong
Kong, China and other Asia-Pacific markets.68
Companies around the world are waking up to the
opportunities of the end-of-use product trade. One
example is Brightstar Corporation, a US-based company
founded in 1997 that offers specialized global wireless
distribution and services, including buy-back and trade-in
solutions for mobile devices.69 Their consolidated revenues
increased by 11.4% from US$ 5.7 billion in 2011 to US$ 6.3
billion in 2012, outpacing the industry’s growth. Similar
cascades across different products—from trousers to
furniture fillings to insulation materials, for example—are
also organized across geographies, frequently from the
northern to the southern hemisphere.
While these cascades prolong product utility at a global
level, offsetting the input of virgin materials, they also
destabilize materials streams and cause leakages from
global or local loops. This is mostly because the netimporting regions for cascaded goods—including many
developing countries—have not yet fully implemented
international conventions or established uniform
regulations on the re-entry of products and components
into global recycling loops. In many developing countries,
including China, India and Brazil, the collection and
recycling of valuable end-of-use materials are often driven
by the informal sector. This results in inefficient
reprocessing, as well as health and safety hazards for the
workers involved.
In China, for instance, the formal sector is well integrated
and yet only covers around 20% of the e-waste (WEEE)
collected.70 The formal sector could extract more value
from the same piece of e-waste than their informal counterparts; this could be improved further if the products
themselves were designed with resource recovery in mind.
In the garments sector, Switzerland-based I:CO is working
on revalorizing pre-owned garments by cascading them
into Sub-Saharan Africa and building up collection
schemes to capture end-of-use streams. However, I:CO
faces initial challenges due to the lack of formalized
collection schemes.71 Therefore, up to now, large amount
of materials that could serve as feedstock for global
recycling loops is still lost.
32
Towards the Circular Economy: Accelerating the scale-up across global supply chains
-- Open linear materials take-make-dispose still vastly
dominate supply chain logistics. Products are made in a
sophisticated multi-tier manufacturing network, used, and
then disposed of in landfills. China, Bangladesh, Vietnam,
Thailand and Turkey account for 75% of the world’s
garment production, whereas use is concentrated in
Europe, the US, China and Japan.72 According to I:CO. the
global collection rate for clothing is only 20%, while 80%
ends up in landfill. Estimates suggest that the figures for all
fast-moving consumer goods sectors are similar: only 20%
of the total materials value of US$ 3.2 trillion is recovered,
while 80% goes to waste.73 Some of today’s highestvolume waste streams are open linear flows, including
construction and demolition, food and beverages. Rubble
produced during the construction and demolition of
buildings accounts for 26% of the total non-industrial solid
waste produced in the United States—160 million tonnes in
2008. This despite the fact that it includes many recyclable
materials, from steel to wood and concrete. Only 20 to
30% of all construction and demolition waste is ultimately
recycled or reused.74
Which pattern will win in the circular economy?
Of these options, only geographically closed loops will be
able to address the imbalance of today’s materials and
product flows in a steady state. Of the closed-loop
archetypes, the ones that are organized locally rather than
globally should, in theory, exhibit superior economics. One
would expect to see this reflected in lower reverse logistics
costs and reduced embedded externalities (mainly energy
consumed). Typically, the greater the distance, the more the
transport and indirect costs will be (higher inventories equal
greater transaction costs). But this is not always the case.
Global trade volumes are increasingly containerized, and
empty containers need filling to offset the structural
imbalance of trade flows. This means global reverse cycles
can be economically viable in certain scenarios. With the
current market price for virgin paper board (kraftliner) almost
twice that of recycled materials (testliner)—US$ 1,000/tonne
versus US$ 577/tonne even after shipping costs at approx.
US$ 64/tonne75 — testliner is still an attractive input for paper
board producers. 30 million tonnes of recovered paper and
cardboard were shipped to China in 2012, up from 17 million
tonnes in 2005.76
The residual value of components and products rises as
access to resources becomes more constrained and
demand increases, so transport costs quickly diminish as a
percentage of total costs. Economies of scale are therefore
improving. The latest reflection of this is the July 2013 launch
of the world’s largest container ship, a Triple-E, by Maersk
Line, the Danish ocean freight giant. The Triple-E represents a
significant increase in capacity: it is 16% larger than Maersk’s
standard E-class vessels, and also more energy efficient.77
Leakages due to materials complexity
and proliferation
The second substantial leakage point that needs tackling to
unlock the full potential of a circular economy at scale is the
complexity and proliferation of materials. In pursuit of
profitable value creation, companies have broadened the
spectrum of materials used in today’s (consumer) products in
myriad creative and complex ways. In the world of plastics,
the number of new polymers has continued to increase in the
past decades, mostly driven by new combinations of existing
monomers [Figure 17]. New additives—whether heat
stabilizers, pigments, flame retardants, antimicrobials or
impact modifiers78—have been the main driver of major
innovations in polymer materials science. This has increased
materials complexity exponentially within and beyond the four
major classes of polymers in use across different industries
and applications today. These four categories are
polyethylene (PE, with demand at 73 million tonnes in total in
2010), polyethylene terephthalate (PET: 55 million tonnes),
polypropylene (PP: 50 million tonnes), and polyvinyl chloride
(PVC: 35 million tonnes).79 According to Prof. Dr. Michael
Braungart, founder and scientific director of EPEA and
others, there are 900 additives used in polypropylene alone.80
Today’s materials complexity compounds the obstacles to
scaling up the circular economy. While tools and methods
exist to create complex product formulations, it is still
devilishly difficult after the fact—even for a manufacturer—to
identify and separate materials, maintain quality and ensure
purity (including non-toxicity). Without reliable classification, it
is hard to collect materials at sufficient scale and robust
supply rates to create arbitrage opportunities. Without these,
investors do not see potential returns to justify investment in
new processes, infrastructure, business models and R&D to
close innovation gaps. And without funding, there is no
progress.
Leakages due to increased materials and product complexity
are vast, as the following examples demonstrate [Figure 18].
Figure 18: Increases in product and materials complexity
lead to significant materials losses
Quality
Current recovering
technologies not
maintaining quality
of materials
Raw materials
Components
Separation
High level of
integration of raw
materials into
components
Product
High level of
integration of
different
components into
finished products
Identification
High level of material
variation and
complexity leading to
difficulty in identifying
individual materials in
the stream
End-of-use
Purity
Mixed streams of products
from different industries
leading to difficulty in maintaining purity of materials
Scale
Low collection rate,
majority of end-ofuse products wasted
SOURCE: World Economic Forum and Ellen MacArthur Foundation circular economy team
Figure 17: New polymers continue to emerge, mostly
driven by new combinations of old monomers
Innovation in plastics
New polymers from new monomers
PPS
POM
PAR
PTFE
EPM
EPDM
iso-PP
Number 15
of new
products
10
5
UF
PF
0
1900
1920
PEO
PUR
PIB
PET
PA
SBR
LDPE
PMM
A
BR
PS
PVC
1940
New polymers from new
combinations of old monomers
or polymers
HDPE
ABS
PAN
Epoxy
PBT
Silicones
COC
VLLDPE
synd. PS
synd. PP
PBT/LCP
PC/ASA
PP/PA
PC/ABC
PC/PBT
PET/EPDM
PP/EPDM
SAN/NBR
PS/BR
PVC/NBR
1960
PEEK
PES
PI
PEI
PVC/CPE
PA/PPO/PS
PA/HDPE
SMA/ABS
POM/PUR
PBT/EPDM
PP/EPDM/HDPE
PVC/ABS
PVC/EVA
PS/PPO
GFK
PC
PPE
LCP
1980
2000
Potential market size
for new polymers
SOURCE: Kunststoffe 85 (1995)
Towards the Circular Economy: Accelerating the scale-up across global supply chains
33
-- Separation of products and materials represents a key
challenge. Linear products—mobile phones and many
other consumer electronics products, for example—
contain integrated components (such as printed circuit
boards) that are made from multiple materials moulded
into single functioning units. There is often no cost-efficient
way to extract the embedded raw materials using
chemical or physical processes without degrading the
product, so most of the original value is lost in current
smeltering-based recycling processes. (Great progress
has admittedly been made in increasing the yield of these
processes in recent years.) Currently, three dollars’ worth
of precious metals (gold, silver and palladium) is all that can
be extracted from a mobile phone that, when brand new,
contains raw materials worth a total of US$ 16.81
-- Sufficient scale and reliability of supply are important
prerequisites for many industrial reverse treatment
applications. However, the volume, composition and mix
of materials in today’s collection schemes and reverse
supply networks are highly variable, making them not
always economically viable.
-- Purity of materials is increasingly challenging to uphold
after many cycles, especially when products from different
industries are collected and processed as one stream, as
additives used by one industry can be contaminants in
others. In 2012, for example, it was reported that some
cereal boxes from a leading cereal manufacturer had been
found to contain fragments of metal mesh. The metal
particles were suspected to have come from printing ink
residues in the recycled board used for the boxes. Metal
particles migrating into food clearly pose a potential health
hazard. While no health issues were reported, the
company had to recall 2.8 million boxes of cereals at an
estimated cost of US$ 20 - 30 million, in addition to
suffering reputational damage.82 Another company
affected by purity challenges is the global carpets, carpet
tiles and sports pitches company Desso. In their carpet-tile
recycling facilities, Desso tries to recover Nylon 6, which is
the most valuable material for upcycling into new fibres for
new high-quality products. Desso design their carpet tile
products so that the yarn and backing can be more easily
disassembled for recycling when taken back. However,
the company faces the challenge of also having to take
back used carpet material originally produced by their
competitors, many of whom did not design their products
for disassembly. Due to glue or latex that has been used to
stick the yarn to the backing, it is more difficult to extract
the Nylon 6 and retain its purity. Desso is looking into ways
to separate these materials more effectively as well as
collaborative initiatives that would encourage
improvements in the industry (e.g. the ‘materials passport’
initiative in the Netherlands).83
Regulators have given great emphasis to eliminating
toxicity from materials used in production processes,
whether the European Commission’s regulations on
chemicals and their safe use (Registration, Evaluation,
Authorisation, and Restriction of Chemical substances,
known as REACH)84 or the US Environmental Protection
Agency’s Toxic Substances Control Act.85 Despite this,
current regulations do not address the issue of pollutants
in existing materials stocks that may enter reverse cycles.
A major concern for Electrolux in trying to increase the
percentage of recycled plastics it uses is procuring
materials that meet the company’s purity requirements.
34
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Their list of restricted materials only has limited clout:
materials no longer present in current products may still
enter the recycling stream in products manufactured
before the list—and the corresponding regulations—had
been drawn up.86
-- Identification of materials is still a major issue for many
polymer-based materials. While metals display distinct
physical properties—whether density, magnetic
properties, melting points or electrical conductivity—that
simplify sorting in industrial revalorization processes,
polymers are black boxes. They have hardly any
differentiating physical properties, but distinct bonding
features at the molecular level [Figure 19]. This raises the
costs of identification. Polymer blends also result in lower
materials quality due to (almost inevitable) contamination.
Only a few players (such as Closed Loop Recycling or
MBA Polymers) have invested in industrial recycling
processes—and only for a few specific sub-fractions of the
materials flows. MBA Polymers currently offers high-quality
recovered ABS, HIPS, PP, HDPE and filled PP, for instance,
while other polymers are offered as mixed by-product
plastics.87 Veolia’s Magpie materials sorting system
enables swift identification of different types of plastic
using infrared and laser technologies. Their new ‘Parrot’
POLY-mer separation facility in Rainham, Essex (UK) has
even more advanced sorting technology to separate up to
nine grades of plastics, ranging from bottles to yoghurt
tubs and food trays, allowing Veolia to process up to
50,000 tonnes of plastics a year. Once separated, clear
plastic bottles are sent to UK-based Closed Loop
Recycling. Veolia is also building end markets for other
materials, such as coloured bottles.88
While progress is visible, current technologies still depend
on accurate—often manual—pre-sorting of incoming
feedstock, which must meet minimum purity requirements
to ensure an economically viable materials yield. Other
high-volume materials flows that suffer from similar
identification challenges include textile fibres and
composite materials.
Figure 19: Metals can easily be distinguished by density
and other physical properties, while polymers cannot
Density
1,000 kg/m3
12
11
10
9
8
7
Metals
Lead
Silver
Copper
Brass 60/40
Steel
Manganese
6
5
4
3
2
Polymers
PS –
polystryrene
PET – polyethylene
terephthalate
Titanium
Aluminium
Magnesium
PVC –
Polyvinyl
chloride
HDPE –
High-density
polyethylene
LDPE –
Low-density
polyethylene
Nylon
1
0
Source: MBA Polymers, public sources
PP – polypropylene
Materials quality across multiple cycles cannot yet be
maintained at or near virgin level using existing
manufacturing and reverse-cycle processes. In paper and
cardboard making, the bonding properties of the fibres
weaken each time they are recycled, leading to decreased
paper strength, especially tensile and burst strength,
elasticity and folding endurance. By the sixth cycle, tensile
and burst strength have typically dropped by 30% and
elasticity by 20%.89 This lowers the paper grade. To raise it,
it requires mixing with a larger share of virgin fibres. The
situation is similar for cotton, a polymer of cellulose, and
many other materials.90
Addressing these challenges will require a concerted effort,
taking a systems perspective along the entire reverse
process. Improvements in one area are likely to entail positive
economic benefits in others. As an illustration, Renault has
formed a joint venture with a steel recycler to collect materials
for recycling from their plants and other sources of end-ofuse parts. The JV gives Renault greater control of the
materials flow: they know the materials composition from the
start, and can thus ensure higher quality. Ricoh, as
mentioned, is one of the few companies to operate a closedloop system at a global level. They start with the design,
creating and manufacturing their products with the aim of
remanufacturing and recycling. The company can control
and manage the five main types of value leakage just
discussed as a result, maximizing the efficiency of their
resources.94
As materials proliferation continues to increase, so do the
challenges. The rapid introduction of new materials often
outpaces advances in infrastructure to cope with and
accommodate them in reverse chains. In the US, plastic
waste sent to landfill tripled to 11.3 million tonnes in 2008
from just 3.4 million tonnes in 1980, whereas total waste
shrank by 16% in the same period.91 Plastics and their
applications have proliferated faster than recovery systems
have adapted.
The compound leakage of economic value because of these
challenges is substantial. Even in purer materials streams
such as PET and paper pulp, the value loss due to quality
degradation and materials loss due to processing is
significant. With PET, the current low quality allows no more
than 20 to 30% of the recycled material to be used in bottles
and 50% in thermoformed products.92 If higher quality could
be achieved by improving manufacturing, collection and
recovery processes, the amount of recycled content in
downstream applications would increase significantly (up to
50% in bottles and 70% in other applications). This would
amount to additional materials savings of US$ 4.4 billion per
annum [Figure 20]. In paper recycling, up to 30% of fibres are
lost during de-inking and removing of fillers and coatings—a
materials loss worth US$ 32 billion globally per annum.93
Figure 20: Global PET flow—a large amount of PET collected from bottles is used in other applications
Millions of Tonnes (2010)1
Virgin PET
54.9
Production
waste recycling
Melt-phase
virgin PET
rPET and virgin
40.8
Fibre & others
38.2
40.7
37.2
Specialty films2
2.6
Post-consumer
recycling
0.1
Post-consumer
recycling
Bottle-to-fibres
3.5
rPET for melt-phase
3.6
Solidstate virgin
PET
Production
waste recycling
17.7
Bottle-grade virgin PET
16.0
rPET and virgin
16.5
Bottle-to-bottle
0.5
Bottle-to-other
0.7
Virgin
A-PET/C-PET
1.7
rPET and virgin
2.4
Not recycled/
wasted
Bottle
production
11.8
Not recycled/
wasted
2.4
Not recycled/
wasted
Post-consumer
recycling
1.2
Production
waste recycling
Thermoform
sheet
Strapping
<0.1 Post-consumer
recycling
1 PET is grouped into 3 main categories based on IV grade
2 Some speciality films (X-ray films) have a dedicated reverse supply chain
Source: McKinsey analysis; SRI; CMAI; TECNON; expert discussion
Towards the Circular Economy: Accelerating the scale-up across global supply chains
35
Trapped in the linear lock-in
Many additional barriers need to be addressed to escape
what is essentially an inherited and powerful lock-in to the
linear system. Our industrial system—like our QWERTY
keyboards or electrical power standards—is an encrusted
reflection of decisions taken during our earlier industrial
history. It is hard to disentangle ourselves from it, which
makes it such a challenge to capture the substantial arbitrage
opportunities outlined so far. The most relevant barriers fall
into four categories: misaligned incentives, sub-scale
markets, limited reverse capabilities and infrastructure and
lack of enablers in the transition.
-- Aligned incentives occur when individual or short-term
choices result in optimal solutions for the system or in the
long term. Changes nearly always need to happen at a
systems-wide level along the entire supply loop or product
usage cycle to establish circular setups. When these
cycles are fragmented among many players externally
along the globally dispersed value chain and internally
among the departments in charge of providing services
and product delivery to customers, misaligned incentives
often result in the inability to create, capture and
redistribute value.
-- Customers and users often only evaluate the
transactional costs at the point of sale (i.e. the price of
the purchase), even if the net present value of upgrading
to a more expensive but longer-lasting product at lower
usage costs would be more economical. Giving such
users additional incentives to adopt alternative models
(such as trials, or adjusted fee models) can tip the scales
in favour of the product with the better total cost of
ownership.
-- Within companies, establishing more circular business
models still depends on navigating incentive
misalignments, which often stem from conflicts of
interest and engrained habits. Frequent internal issues
include fear of cannibalization, or the higher capital and
cash required to change a product design and move
from a sales-based to a usage-based model without
transfer of ownership. The need to create an integrated
reverse supply chain is also an issue (including
incentives for users to return products to the company),
and companies worry about simplifying designs and
limiting product variants to achieve scale. One of the
biggest concerns for Ricoh’s management before
launching GreenLine was the potential cannibalization
of new products. The GreenLine team put together a
control plan in addition to the business case to carefully
monitor the sales development of new and GreenLine
products to ensure optimal coverage of the different
customer segments.95 Simplifying materials variants
(even when complexity is mostly driven by legacy
systems) is challenging as it usually involves major
changes to processes, and sometimes regulatory
approval or consumer acceptance.96
36
Towards the Circular Economy: Accelerating the scale-up across global supply chains
-- Along supply chains, it is hard to share the benefits.
How can a manufacturer divide out the gains from an
optimized design or reduced number of materials at the
start of the chain, if these are changes that ultimately
increase the end-of-use value of the finished product?
Consider returnable bottles. Store owners generally opt
for less materials-productive one-way systems to
maximize floor space capacity, which promises higher
sales from a wider product range. The beer industry has
experienced a noticeable drop in the share of returnable
bottles systems in Europe, from about half of the bottle
use in 2007 to a third in 2012 in some markets. In
mature markets, this decline is expected to continue
and to reduce the bottle system’s gross margin
significantly, unless some proactive steps are taken.
SABMiller believes that while the closed loop bottling
system is under pressure, strategic shifts could see
returnable bottle thrive in a future circular economy.97
Misaligned incentives across the value chain are the key
driver of the decline. Both external and internal factors
contribute, including store keepers’ inclination to free up
more sales space for linear-based business
opportunities, assumed consumer needs (the
perception that one-way bottles convey a more
premium image), and marketing’s preference for
one-way bottles to differentiate products.
-- Across geographies and political borders, a strong
case can often be made for investing in regional
remanufacturing capabilities that enable job creation
and re-industrialization in local communities. However,
this would also often lead to lower economic output in
the exporting countries that engage in primary
manufacturing. At the macro level, the circular economy
setup therefore needs to balance the benefits for
different geographies. The number of new units shipped
from manufacturing countries will decrease as more
remanufacturing takes place in Europe and North
America. To offset this, companies can agree that the
remanufacturers will send recycled components and
raw materials to the manufacturers (taking advantage of
the low return shipping costs [Figure 16]). This loop
creates materials cost savings for the manufacturers. In
addition, closing local loops in manufacturing countries
such as China and Brazil would generate the economic
arbitrage opportunities outlined in the previous section,
because these economies have grown into such strong
consuming economies.
-- Markets of scale are at the heart of the current inbound
production process for products and services, and the
continuous reconfiguration of their sophisticated, efficient
and responsive multi-tier supplier networks. These
markets create value because they are transparent and
able to provide robust streams of materials, components
and products reliably and respond quickly to fluctuations in
demand. However, such ‘industrial-scale’ markets do not
yet exist for many materials suitable for reverse cycles,
making it hard or impossible for companies to secure
quality-controlled and reliable secondary materials and
components to complement or replace primary stock.
-- Reverse cycle infrastructure and logistics capabilities
are essential to close the geographic imbalance between
points of (re-)manufacturing and usage. The setup needs
to ensure that costs do not eliminate the positive arbitrage
opportunities embedded in the difference between
recovered and virgin materials, components and products.
In the linear take-make-dispose economy, last-mile
transport to landfills and incinerators is historically often
local, with little or no ability to sort and handle different
types of materials carefully enough to maintain quality and
purity at scale. Only a few integrated industrial players
such as Veolia and Waste Management have emerged so
far with the geographic reach and capabilities to improve
reverse cycle flows across multiple product or materials
classes.
-- Enablers are needed in many areas to pave the way for
new circular business models. Boundary conditions are
one such example (e.g. regulation), or funding and
sufficient transparency on opportunities. Many companies
have adopted access-over-ownership business models to
appeal to the new consumer mindset and profit from using
idle capacity in the economy. Among the best known are
Airbnb, Lyft, Zipcar, Renault’s Twizzy battery rental
scheme, and Philips’ Pay Per Lux business model.
However, current support services and regulations often
lag behind. Pioneers of circular business models have
faced difficulties in raising sufficient funds as a result, or
sometimes run into problems with local authorities. Desso
has found it difficult to convince financial institutions to
finance their carpet leasing model, as carpet tiles are
generally considered to belong to the building materials
segment. This has low residual value after five, seven or
ten years of use, and does not take into account the
materials value after end-of-use.98
The list of leakages and barriers to accelerating the scale-up
of the circular economy is long, and some will be tough to
resolve. But none are insurmountable, and solutions seem to
lie this side of the technology frontier. Aspects of geographic
dispersion, materials complexity/proliferation and systems
lock-in have all been dealt with successfully, at least in part.
International standards for materials have been defined and
adopted. Systems transition to supply/delivery and reverse
logistics aligned to the principles of the circular economy can
commence once the hinge points have been identified and
acted upon. The next chapter describes which hinge points
would benefit from a concerted effort—across companies,
along the supply chain and across geographies.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
37
38
Towards the Circular Economy: Accelerating the scale-up across global supply chains
4. What are the solutions?
Emphasizing cross-border, cross-industry and
cross-sector reach is the key. The most
promising options are managing pure materials
stock across global supply chains, closing
multi-tier reverse cycle networks, and setting up
innovative usage models.
The obstacles to scaling up the circular economy across
supply chains at a global level are primarily the difficulties of
closing the loop geographically and in terms of quality, as
already described. Resolving these issues will also mean
overcoming the engrained lock-in of the linear system. So
how can stakeholders best start addressing these obstacles
to unlock the value of the circular economy?
As with every major transformation, it is vital to take a
systematic approach, unravelling the issues at the point of
greatest leverage. This chapter outlines three avenues for
action, all with the potential for carrying circularity to a tipping
point. They represent three different perspectives on how to
turn global supply chains (and open loops) into supply
loops—or supply cycles—to surmount the issues just
outlined: network design, materials purity, and demand-side
business model innovation. After substantial research and
analysis, the team behind this report have determined that
the second—reorganizing and streamlining pure materials
flows—would be the best with which to begin. The reasons
for this are detailed in the final section of this chapter, but it is
vital to see all three as a whole, as they are so intertwined.
Accelerating progress on one will automatically trigger
progress in the others, too.
-- Set up global reverse networks for products and
components. This focuses on building out reversenetwork capabilities, which is essential to address the
geographic dispersion challenge. This will ideally take
place at a product and component level, so it will be
industry specific and require collaboration along the
incumbent value chain and adjacent/cascaded activities.
-- Innovate business models on the demand side. This will
be critical to mainstreaming the circular economy.
Innovation will be the way ahead for B2B-favorable setups,
and wide adoption in B2C. New models will also be key to
tapping the growing trend towards collaborative use of
physical assets: the ‘sharing economy,’ as well as
overcoming linear lock-in.
Set up global reverse networks
The full potential value of the circular economy goes well
beyond simply recycling used materials—whether down- or
upcycling them. This value is embedded in the reuse,
maintenance, refurbishment, and remanufacturing of
components and products, so it is equally important to
strengthen these reverse setups and capabilities. Companies
have mastered the orchestration of complex, multi-tier
inbound supplier networks. Now the same sophistication
needs to be applied to orchestrating post-usage value
streams across multiple reverse cycle partners.
Map the system for one product
Companies need to carefully evaluate which reverse cycle
networks could create the best arbitrage opportunity. Figure
21 depicts a very simplified multi-tier supplier network for a
power drill, and sketches out the different options for the
reverse cycle. Would it be better to reinstall the power supply
into the next drill (as a used component)? Or to use at least
the cable and plug, if transformer reliability presents a
problem? Or should all the components be sent to the
smelter for metal extraction, as this can be done in one
simple shipment instead of organizing a more complex
operation involving disassembly and remanufacturing? Each
of these trade-offs is highly dependent on the scale, reliability
and transferability of the supply of used components. Equally
important is to factor in the relative cost advantage of setting
up effective post-usage loops, typically with business
partners, versus making new components and using virgin
materials.
-- Reorganize and streamline pure materials flows.
Materials represent the greatest common denominator,
and the most universal assets across industries and
geographies: they will ultimately require closed loops at a
global level to achieve full potential. The key will be to
tackle materials complexity and create pure materials
stocks at scale that generate sufficient economic benefits
for participants.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
39
Figure 21: Reverse logistics should be as sophisticated
as forward logistics – power drill example
Production
Black
metal TPE ABS
Raw material
Chuck Chuck
base key
Subcomponent
Chuck
Postconsumer
Product
Remanufacture
Usage
Recycle
Component
Component
Chuck
jaw
Grip
housing
Subcomponent
Raw material
Power drill
Grip
Chuck Chuck Chuck
base
key
jaw
Black
metal
Switch Casing Motor
Gear
body
Grip
Maintain/
reuse/
refurbish
Chuck
Black
metal Copper Steel
Gear
body
Grip
housing
TPE ABS
Switch Casing Motor
Black Copper Steel
metal
Source: Expert interviews; World Economic Forum and Ellen MacArthur Foundation circular economy team
Figure 22 shows the financial and labour arbitrage of potential
different reverse cycle treatments for a power drill example
based on our circularity model [for assumptions, see
Appendix 2]. In the refurbishment scenario, used drills (in
good condition) are collected, refurbished locally, and sold at
80% of the original retail price. Interestingly, although total
revenues are lower, the refurbishment operation results in an
additional profit of 4 percentage points compared to the
status quo, and creates jobs in the local refurbishment facility.
In the recycling scenario, in addition to local refurbishment,
other used drill components and materials are shipped back
to China as input for making new drills, bringing the potential
margin up by 9 percentage points (compared to status quo)
driven mostly by materials savings. Assuming additional sales
instead of cannibalization of new drill sales (i.e. the
refurbished drills at competitive prices capture new
customers), the profit margin would increase by 10
percentage points.
40
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Observations from current practice suggest that raw
materials can be recycled at global levels, or at least sold on
increasingly liquid markets. In contrast, component
harvesting for reuse and remanufacturing as well as product
refurbishment are best executed at a local or regional level, as
this cuts down logistics costs and allows players to tap local
engineering skills. Ricoh, Renault and Canon all have their
remanufacturing facilities in Europe, for example, which helps
them manage supply and demand and creates local jobs. In
the US, the remanufacturing industry is estimated to provide
around 500,000 jobs for products ranging from automotive,
electrical and electronic equipment to furniture and
construction equipment.99 In terms of value, CLEPA (the
European Association of Automotive Suppliers) puts the
remanufacturing market in Europe at US$ 10 to 12 billion.100
Figure 22: If adopted in its entirety, a circular setup can
improve margin - power drill example
Assumption
Impact (US$ thousands)
Status quo
Manufacture 1000 power drills in China
Sell units in the EU
70
Refurbishment scenario
Status quo + collect (with 10% of original
price as incentive for customers) and
refurbish 200 units (in good condition)
Sell 800 new units and 200 refurbished
units at 80% of original price
67
Recycling scenario
Refurbishment scenario + collect additional
70% of unit of end-of-use units (incentive:
5% of original price) to be recycled in China,
with material recovery rate of 80%
Additional sales
Recycling scenario + assume refurbished
units are sold to a completely new customer
segment
67
81
13
11
5
6
Revenues Material
costs
10
9
10
12
Labour
costs
21
20
22
25
Other
costs
26
27
31
38
Margin
1 Including plant operating costs (30% of material and labor costs), SG&A (25% of plant, material and labour cost), shipping costs (according to current freight rate), and cash-back costs for returned
devices (10% of original price for products in good condition and 5% for end-of-use for recycling)
Source: Expert interviews; World Economic Forum and Ellen MacArthur Foundation circular economy team
Establish the system at scale
How can companies unlock these profit pools? First, together
with their partners in the inbound and reverse supply cycles,
they need to carefully evaluate the arbitrage opportunities.
What exactly are the costs involved, and what control can the
stakeholders exert (whether jointly or individually)? As more
products and components re-enter supply networks, liquid
markets for components and materials are likely to emerge
that meet the specifications and increasingly strict quality
standards of modern manufacturing processes. First-mover
opportunities lie ahead in all industries for stakeholders who
build reverse cycle capabilities (especially for collection,
remanufacturing, and refurbishment) to take full advantage of
this potential, Sophisticated reverse network management
capabilities are another part of the puzzle, best fuelled by
investments in hardware (e.g. sorting and manufacturing
capabilities) and software. The latter will need a high level of
sophistication, such as materials databases, methods for
monitoring the condition of used components, and inventory
management tools to store BOM information. Companies
working hand-in-hand with governments and industry
associations will have the best chance of establishing
standards to ensure product quality and supply chain
transparency.
To arbitrage the residual value of a product or materials flow,
companies will ideally organize their reverse cycle network
across different product and materials components with the
same sophistication as they have evolved for their inbound
multi-tier supplier networks. Ricoh, an example of a practiced
‘reversed cyclist’, manages many different circular archetypes
for their products, components and materials, maximizing
their returns from each. Equipment collected is evaluated and
entered into a reverse cycle based on its residual value.
Depending on the state of the machine, it is either
remanufactured and sold as a GreenLine device, or
harvested for parts and materials. The valuable parts are
remanufactured and reused in Ricoh’s products. The majority
of the remanufactured parts are used in GreenLine machines.
In some Ricoh laser printer models, however, remanufactured
toner cartridges account for 40% of the total cartridges. In
addition, 38% of Ricoh virgin toner bottles are made from
recycled plastic materials. The company plans to scale up
closed materials loops that involve shipping recovered
materials back to Asia, where the majority of new parts
manufacturing takes place. Ricoh has continually improved
their resource loops setup since establishing the Comet
CircleTM in 1994.101 When Ricoh started remanufacturing
equipment in their European plants, Phil Hawkins, Assistant
General Manager, Business Strategy, at Ricoh UK
remembers: “We saw a universe of possibilities opening up.”
Indeed, GreenLine products generate margins 1.5 to 2.0
times higher than new product lines. Beginning to navigate
this universe promises to be an attractive opportunity for
many companies, which many have started to capture,
especially in the inner circles of component harvesting and
product remanufacturing.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
41
Reorganize and streamline pure
materials flows
The ultimate objective is to close materials loops on a global
level across all stakeholders, industries and geographies
[Figure 23]. To get the full arbitrage of closing the loops,
materials flows that are smooth and pure will be established
by effecting concerted change along the entire supply cycle
and across industries. This streamlining will ideally go all the
way back to the roots—basic materials.
PET offers a useful analogy: high adoption of PET as the
basic input for bottles across the beverage industry has
created a substantial market for recycled PET, even beyond
bottles. This in turn has created a stable platform for further
materials innovation (see Box 4). While this is not by any
means a perfect flow (a large proportion of end-of-use PET
still ends up in downcycling cascades or landfills/incinerators),
it shares a number of attributes that contribute to establishing
a pure materials flow.
Figure 23: Materials are the greatest common
denominator across industries and geographies
Source: Expert interviews; World Economic Forum and Ellen MacArthur Foundation circular economy team
42
Towards the Circular Economy: Accelerating the scale-up across global supply chains
Box 4: The evolution of PET recycling for
beverage bottles
The first polyethylene terephthalate—better known as
‘PET’—bottle was introduced in 1973.102 It quickly gained
wide acceptance among bottlers and consumers because it
is lightweight, economical and shatterproof. Today, it is
estimated that around 40% of all soft drinks packaging
around the world is made from PET. It is also used as a
packaging material for many other consumer products, not
just beverages.
By creating a de-facto standard for plastic bottles based on
PET, which is 100% recyclable, an entire system has been
organized around maintaining it as a technical nutrient across
multiple cycles without quality degradation. PET collection
rates vary across different regions in the world. Regions with
relatively high collection rates include Europe, with rates as
high as 48%, and Brazil at around 55%. Recycling drives
value by replacing a share of virgin raw materials (around 20
to 30% of plastic bottles use rPET, for example). It also
generates additional revenue streams, as rPET fibres can be
used for secondary applications (such as textile
manufacturing). This secondary materials stream offers an
attractive business case with high volumes and value, too, so
a market has also formed for rPET. This has attracted
investors to install recycling technology (e.g. Closed Loop
Recycling) and collection schemes that create business
opportunities for solution providers along the reverse chain.
Tomra reverse vending machines are one of the core
components of the dual system in Germany, for instance.
Because the much of the PET usage is single use, the
industry is conscious of public demand for sustainability and
recycling. As such, recycling has been high on the agenda of
bottlers and consumers since the early days. As April Crow,
Global Director of Sustainable Packaging at The Coca-Cola
Company, points out, “We [as a consumer goods
community] need to make sure that more of the materials we
put onto the market have value to encourage the circular
economy approach; too many today are difficult to recycle or
contaminate existing recycling streams. When we introduced
the first PET bottle into the market in the late 1970s, we made
a commitment to develop the technology that would allow
that material to go back into our packages as a secondary
raw material. We supported the development of the
technology and end markets to enable this.” Coca Cola has a
design approach that insists that their packaging must be
designed to be recyclable. However, the company also
recognise there is still a role to play in increasing collection
and recycling of the packaging material that they produce.
Meanwhile, innovations have increased PET applications.
One of the most visible is the significant reduction in bottle
weight and wall thickness. Nestlé Water, for example,
continuously reduced their total PET packaging weight from
2005 to 2010. By 2010, they were using an average of 41.7
grams of packaging materials per litre—19% less than in
2005—by making the bottle, caps and labels lighter without
compromising quality (covering properties such as resistance
during transport, solidity, permeability and softness). It is now
even possible to fill PET bottles at elevated temperatures due
to innovations in bottle shape, opening them up for new
markets, such as sports drinks.
Unlocking the full potential of the circular economy for basic
materials thus means reorganizing and streamlining materials
into global flows and loops of standardized purity. An initial
step will be to pick and reorganize a few materials streams
that are already sizeable and well understood in terms of
properties, economics and (emerging) treatment/processing
technologies. These would be materials where a concerted
effort by a few major players can create markets large
enough to surpass the threshold value for circular arbitrage
models.
Some traditional materials are prime candidates. Analysing
current municipal solid waste composition reveals that the
most abundant discarded industrial materials include paper
and cardboard, plastics, glass and metals. Their potential is
enormous. Strikingly, although metals are already perceived
to have high collection rates, a recent UNEP study of 60
common metals has shown that only one-third actually have
a global end-of-use recycling rate of 25% or more.103 In
addition to traditional basic materials, it will also be important
to plan global circular scale-ups for emerging or still largely
unfamiliar materials. This means setting up systems for
materials that will be used in manufacturing processes of
the future (e.g. 3D printing), and that are restorative by
choice, even if their volumes are low today.
Design building blocks for flagship projects
A pilot for larger transformation would ideally focus around
four types of material that are each at different stages of
maturity in terms of circular setup and development [Figure
24]:
-- Golden Oldies. These are well-established, high-volume
recylates with a remaining purity challenge. Paper and
cardboard as a high-volume materials stream has high
collection rates, but suffers from quality loss and ink
contamination during the reverse cycle, resulting in an
estimated US$ 32 billion in value lost annually. PET, glass,
and steel also fall into this category.
-- High Potentials. Materials used in high volumes that
currently lack systematic reuse solutions are polymers, for
example. Collection rates are limited, and separating out
the materials/maintaining their quality and purity is hard
due to the high fragmentation of materials, supply chains
and treatment technologies.
-- Rough Diamonds. These are large-volume by-products of
many manufacturing processes, such as carbon dioxide
and food waste, A broad set of valorization technologies is
emerging that could provide additional value and displace
virgin materials intake.
-- Future Blockbusters. A number of innovative materials
have breakthrough potential, either from enabling
substantial improvement of materials productivity (such as
3D printing), or having usage cycles that are fully restorative
by design and intention.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
43
across industries and geographies. The findings that result
at a systems level will often be highly transferable to other
materials in the same category. After establishing proof of
concept and initial flagship successes for these signature
products, the stakeholders can then roll out the solutions to
other materials in a given category. This will be much faster
than if they tried to cover all the materials in a category at
once.
Figure 24: Proposed materials classes with different
starting points: each requires a different action plan
Emerging
technologies1
Example
High quality
of recovered
materials
High
volume
High collection rate
Current picture
( ) ( )
Golden
Oldies
PET
Metals
Paper
Glass
High
Potentials
Other
polymers
including PP
and PE
Rough
Diamonds
Concrete
Carbon
dioxide
Food waste
Future
Blockbusters
3D printing
materials
Bio-based
materials
( )
( )
Trigger points
Enhancing
purity of
recovered
materials
( )
Improving
collection rate
Enhancing
recovery quality
( )
Scaling up
technologies
and applications
Embedding
in reverse system
Standardizing
emerging materials
Scaling up
technologies
and applications
Embedding
in reverse system
Technologies for recovering quality that are able to scale up quickly
Source: World Economic Forum and Ellen MacArthur Foundation circular economy team
1
Go to scale starting with signature materials
Because the position at the outset is different for each type
of material, and each category comprises a large set of
materials, a first step would be to pick a signature material
from each category as an example. Different players will
then find it easier to collaborate on specific materials
A detailed map of current flows is the first milestone,
identifying and quantifying materials leakages at the ‘pain
points’ for each material. The next would be developing
targeted initiatives to address these leakage points, putting
solutions in place (at a systems level) to capture the value
quickly. These sets of initiatives would ideally create large,
pure and constant materials streams that are economically
attractive, catalysing global liquid markets for their reverse
cycle networks. Experts around the globe were interviewed
for this report, providing unique insights into the potential of
circular flows in each of these groupings.
-- Paper and cardboard is an excellent candidate for a
signature material in the ‘Golden Oldies’ category. It
is already collected in large quantities, traded globally
and recycled using well-established technologies (with a
global recovery rate of 49% and up to 78% in Japan—
Figure 25). The challenge in paper recycling is minimizing
the loss of fibre and fibre quality during processing. One
aim of the initiative would be to minimize the inflow of
pollutants into the materials stream. Another would be to
exchange best practice on how to maintain the desired
properties over multiple recycling loops (or at least to
identify options for maintaining the highest use form in
the downcycling cascade).
Figure 25: Fibre flows in the pulp and paper value chain—recovered fibre is responsible
for almost 50% of pulp supply for paper and cardboard
Sawlogs & other
wood products
933 million m3
Sawdust/chips
250 - 300 million m3
28%
15 %
Wood
3,275 million m3
Post-consumer recycling for
recycled paper
Pulpwood
491 million m3
45%
60% 300 - 350
55%
million m3
40%
186 mT
49%
51%
Virgin fibre
614 million m3
Pulp for
paper
379 mT
57%
Woodfuel
1,850 million m3
Pulp for uses
other than paper
150 - 200 million m3
Source: RISI, FAOStat, McKinsey analysis, expert interviews
44
Towards the Circular Economy: Accelerating the scale-up across global supply chains
By-products
(e.g. black liquor) & loss
during digestion
140 mT
115 mT 30%
Primary
recycled based
203 mT 54%
Mixed
61 mT 16%
Primary virgin
based
-- Polymers represent a signature product in the High
Potentials category. Many companies—including Philips,
Electrolux and B&Q/Kingfisher—have initiated internal
projects to streamline the amount of polymers they use.
They are also enforcing compliance with increasingly
stringent regulations, including the EU REACH programme
and the US EPA’s Toxic Substances Control Act. Other
aims are to standardize and simplify components and
materials, limit the additives and compounds required to
achieve the desired materials functionality, and raise
collection rates. A further aspiration is to invest in
advanced recycling technology.
Some companies are already well ahead on this path.
Alongside their mission to increase recyclable content
across their portfolio, Electrolux and Philips have drawn up
lists of restricted materials not to be used in their
products.104 B&Q/Kingfisher is striving to create their first
closed-loop product, starting with their signature power
drill. They are exploring with their drill manufacturer in
China and MBA Polymers how they might start to build in
circularity right from the product design stage, use
recycled plastics, and establish a reverse cycle to collect
and extract the materials in a closed-loop system.105 The
drills could be manufactured in China according to circular
economy specifications and with recycled materials from
their own feedstock. After being sold in Europe, they could
be collected for refurbishment in Europe and recycling in
China.
These case examples highlight the importance of reducing
toxicity in the materials selected and how they are
designed. In addition to refurbishment, remanufacturing
and up- or downcycling them after end-of-use,
collaborating with partners in the reverse cycle networks is
also key. Of the four major polymers used in today’s
industrial applications, polypropylene (PP) could be the
ideal candidate as it is consumed in high volumes (50
million tonnes in 2010) across many products, including
electrical and electronic equipment, automotive parts,
packaging and textiles. The first three product applications
have relatively high collection rates, and a large amount of
PP could be extracted. Technologies for separating and
identifying the different variations of PP would need
refining. But the largest opportunity of all would be to
simplify and improve recyclability of the wide range of
additives currently used in polymer manufacturing.
Additive choice today is driven by cost and functionality,
not by recycling feasibility. The latter corresponds to the
strength of the bonds these additives form with the
polymers. Additives that are mixed with the polymers
mechanically rather than being chemically bonded are
easier to separate. Examples are inorganic pigments such
as titanium dioxide (a whitening pigment) and iron oxides
(red, black, brown and yellow pigments).106 An opportunity
would be to tackle PP applications where technology
requirements are low. These would include packaging and
the use of non-differentiated components to simplify and/
or increase the use of mechanically mixed additives.
-- Carbon dioxide recovery could be a signature material
for the Rough Diamonds group. McKinsey & Company
has established an initial carbon cost curve for carbon
recovery (especially in the form of CO2) that maps the
carbon emissions abatement potential for existing technologies along arbitrage opportunities. This sphere has only
gained niche attention so far (greenhouse products and oil
recovery, for example), but a number of promising technologies exist and many more are emerging that can capture
and metabolize of carbon as an industrial by-product.
Many of those would be profitable even without carbon
pricing [Figure 26]. Currently, only 16% of the 500 million
tonnes of low-cost, concentrated CO2 are tapped in this
way. (This is primarily CO2 available from natural sources,
as a by-product of fertilizer plants that process natural gas,
at a cost of less than US$ 20 per tCO2). However, now
Novomer in the US and Bayer in Germany have started
pilot plants to transform CO2 into commonly used polymers, including PE, PP, and polyurethane. This opens up
the possibility of eventually replacing oil as the feedstock
for these materials – a huge opportunity. Commercialization of the technology is expected by as early as 2015.107
Advances in this area would overturn the concept of CO2
as a pollutant, instead exploring how it could become a
valuable economic asset for other businesses, serving as a
feedstock for polymers and other materials currently
dependent on oil. Through the lens of circularity, the
economic justification Carbon Capture and Storage (CCS)
Projects, arguably a key technology we still require at scale
to address CO2 pollution from new coal power stations,
can be transformed. CCUS projects (Carbon Capture, Use,
and - if needed - Storage) become driven by the economics of the revenue stream generated by the potential use of
the CO2 in new industrial applications. The economic
potential of CCU projects would be worth analyzing in this
project, especially for non OECD economies.
The central question would be how these technological
inventions can be used to innovate the business models
around them at systems levels. Large-scale energy
producers with chemical feedstock companies would
ideally join forces in converting their CO2 into polymerbased products. Perhaps they could even be encouraged
to find uptake for them in their own markets.
-- 3D printing materials would be an appropriate product
in the Future Blockbusters category. The Biomimicry
Institute is working with the Ellen MacArthur Foundation to
explore a multi-purpose printing agent that largely
originates from bio-based regenerative materials.
Harnessing the benefits of materials innovation could
improve the underlying economics of materials use as only
a few building blocks would be needed (along the lines of
Biomimicry’s principles). A significant amount of materials
waste could be avoided in the process (see box 5). 3D
printing technology is a fast-growing sector with a wide
range of applications, from prototyping and tooling to
direct manufacturing. EADS, the manufacturer of Airbus
aircraft, managed to achieve a 90% reduction in the
materials waste of costly aerospace-grade titanium using
3D printing, several tonnes of which are needed for
manufacturing an aircraft. Titanium-made parts are usually
machined from solid billets: 90% of the material is cut
away. The new 3D printing process uses only 10% of the
raw material (in the form of titanium powder) that the
traditional process requires, less energy than a
conventional factory, and is sometimes faster.108
Towards the Circular Economy: Accelerating the scale-up across global supply chains
45
Figure 26: The cost curve has significant potential for
profitable use of CO2
1
2
mineralization2
(e.g. concrete curing)
Decarbonization of
cement production
2,000 Sequestration by
1,000
500
Polymers
Enhanced Oil
Recovery (EOR)
Enhanced Coal Bed
Methane (ECBM)
CO2 utilization
Mt CO2 per year
Liquid fuel from
renewable
energy and CO2 1
Potentially profitable
without carbon price
Profitable only
with carbon price
Indicative
profitability
Remediation
of aluminium
1,500 production residue
Cost curve for future potential uses of CO2
Experimental
Pilot stage
Commercial
Both biological (algae/microorganisms) and technical
Shown is the potential in concrete curing, higher potential possible as pure sequestration technique
Source: McKinsey analysis
The objective of a concerted effort focused on 3D printing
would be to gain an overview of the materials currently in use.
Which have the highest potential for integration into circular
economy systems, at the lowest cost? The rapidly evolving
materials landscape could be screened and potentially
guided towards more reusable materials—potentially even
those that are fully bio-based and regenerative. A take-back
system would also be needed to ensure that products are
returned and reconfigured as feedstock.
Box 5: The astounding potential of 3D printing
The performance of 3D printing technology has improved
significantly since its conception in the early 1990s. The
range of materials has expanded, while prices have rapidly
declined for both printers and materials. Although the current
market size is still relatively small, estimated at around US$
1.7 billion in 2011, the McKinsey Global Institute (MGI)109
estimates that the economic impact of 3D printing could be
US$ 230 billion to 550 billion a year by 2025. In the MGI
report published in May 2013, 3D printing was identified as
one of ‘12 disruptive technologies that will transform life,
business, and the global economy.’
3D printing operates in an additive rather than subtractive
manner. The printer generates the product and minimal
support structures, greatly reducing the amount of materials
used and the energy required to manufacture the product.
The logistics of building to shape in this way (‘additive
manufacturing’) are also much less energy intensive, as
manufacturing using 3D printing involves sending data
around the world via the Internet rather than physical
materials around the globe on trucks, ships and planes.
According to the US Department of Energy, additive
manufacturing uses 50% less energy on average, and saves
up to 90% on materials costs compared to traditional
manufacturing.110 The technology can also create objects that
are difficult or impossible to produce via traditional
techniques.
46
Towards the Circular Economy: Accelerating the scale-up across global supply chains
These features explain why 3D printing is likely to spread so
rapidly over the coming decade. Its use is already
commonplace for designers and engineers, who use 3D
printers to create product prototypes, tools, moulds, and
even final products. On an industrial scale, Boeing has
produced over 20,000 3D-printed parts since last year, using
these parts in 10 different types of military and commercial
aircraft.111 These newer applications of 3D printing could
enable unprecedented levels of mass customization, while at
the same time transforming supply chains into efficient and
sustainable models.
A wide array of materials can be used as substrates for 3D
printing, including a broad range of polymers (thermoplastics,
HDPE, metals and alloys, paper and ceramics, for example).
However, some of these materials are toxic (e.g. heated PVC).
Solutions for this are starting to emerge. One example is
DSM’s C2C-certified Arnitel engineering thermoplastics,
developed in collaboration with EPEA.112 The words of Janine
Benyus of Biomimicry 3.8 are food for thought:
“So much waste from our manufacturing processes comes
from their subtractive nature…whereas life builds to shape.
3D printing (additive manufacturing) gives us the ability to
build to shape, layer by layer. It also gives us the ability to think
about varying materials layer by layer, creating bio-inspired
composites that add toughness or strength, but that easily
disassemble. Suddenly, you can create an intricate
architecture inside the product, as well as an optimized outer
shape. You don’t need more material to enhance
performance. You need design.”113
The ability to create different structures from the same small
set of materials can generate new and valuable materials
characteristics and variations. These materials, according to
Benyus, need to be ‘common, safe, and recyclable from the
start.’
-- Another Future Blockbuster: bio-based, regenerative
materials. By applying bio-based and regenerative
materials at scale, Lend Lease improved the process for
enhancing the use of certified regenerative materials (such
as new wood) in the construction of London’s Olympic
Village. Scaffolding used for construction was later folded
into the furnishing and finishing of the buildings, and is now
part of the surrounding landscape design after dismantling
the temporary houses. This represents an effort to
maximize the use of materials for lasting infrastructure
construction, resulting in significant materials savings and
reduction of construction waste (no wood transported to
the site went unused or wasted).114 Regenerative materials
that are restorative by nature/design could replace more
complex materials that are harder to reuse in large and
materials-intensive applications. Bio-based materials could
also be generated using by-products from other
processes as feedstocks, as the following examples show.
Lend Lease’s new product line, Cross Laminated Timber
(CLT), is made from wood chips of short and medium
length from wood mills (normally considered scrap). Their
proprietary technology presses the chips into timber
boards. Construction using this material is fast, and also
requires less labour, energy and water. The first 10-storey
apartment building using CLT took a team of five skilled
workers just 10 weeks to construct.
Ecovative produces highly versatile and completely
compostable alternatives to synthetic materials. Their
products are made of mycelium—the roots of
mushrooms—that grows in and around agricultural
by-products. Mycelium can assume any shape at all.
These materials are already being used in protective
packaging for Steelcase and Dell, as well as new
sustainable packaging in collaboration with Sealed Air.
Ecovative is expanding the applications of their innovative
material from packaging to home insulation, cars and
structural biocomposites.115 In the words of Sam
Harrington, Ecovative’s Marketing, Sales & LCA Director:
“you can pretty much grow anything with mycelium.” Its
applications are close to unlimited.
As with 3D printing materials, the first step is to gain an
overview of the current bio-based materials landscape.
This will spotlight companies with the greatest potential for
large-scale cross-industry applications. Bio-based
materials will ideally tap the waste feedstock from other
value streams (e.g. agricultural waste, and manufacturing
by-products such as wood chips). Driving standards and
encouraging investments in the R&D of these materials will
also speed their development. In addition, a thorough
investigation of the implications of scaling up these
systems would be needed to avoid the unintended
consequences of resource depletion. For example, the EU
policy of subsidizing biomass for biofuel led to shortage of
wood in Europe and un-sustainable imports of wood from
other countries to fill the gap. It also negatively impacted
e.g. the furniture industry by mispricing a valuable
resource.
Initiatives on purifying materials stocks should include
establishing the building blocks and mechanisms to facilitate
smooth materials flows. Further detail on how this is planned
can be found both in Chapter 5.
Innovate demand-focused business
models
Modified business models will play a key role in overcoming
the geographical dispersion and quality leakage issues
described above and in Chapter 3. Business models are
needed that that allow better access to products,
components and materials during and within the post-usage
loops. Business model innovation will be critical to
mainstreaming the uptake of the circular economy principle in
more B2B setups, and in B2C. It will also be important to fully
capture the potential of the shift to a sharing economy already
discussed.
Advancing new access-over-ownership and take-back
models will further accelerate the adoption of circular
economy business models because they drive the greater
use of existing idle assets. Examples are office sharing as
organized by LiquidSpace, and parking space sharing using
the online tool ‘Park At My House.’ Better control over the
fleet of products and embedded resources will be another
benefit (via take-back schemes, for example, or rental/leasing
models). Permitting the monetization of investment in the
innovation/improvement of more circular designs will also
encourage spread (e.g. higher-cost products with increased
longevity for leasing model can compete with lower-cost
products in traditional sale model).
It will also be helpful to segment products and services to
identify how best to meet the company’s and consumer
requirements when shifting to new business models. B&Q/
Kingfisher has started to develop a segmentation approach
for their portfolio along the dimensions of cost of materials
and frequency of usage. Rental models are most applicable
for high-cost products with short usage periods (e.g. flooring
sander and Rug Doctor for specialized carpet cleaning), while
end-of-use take-back for recycling would be best for those
with low cost and heavy usage (e.g., clothing)116. The Forum’s
Young Global Leader working group on The Sharing
Economy has identified specific criteria for considering
collaborative consumption business models. These include
high liquidity of assets, significant idle capacity, high cost of
ownership, rapid obsolescence, and no demand and supply
limitations.117
Transfer business model solutions
Companies that have already ushered in new business
models of this kind have sometimes even found they can
transfer what they have learned to other businesses.
-- Improving their relationship with customers. I:CO has
noted that some of their partners’ stores with clothes
collection schemes experienced an increase in foot traffic.
In addition, the company noticed that providing incentives
(with vouchers) and transparency on what happens to the
collected clothes with in-store programme flyers
encourages customers to take end-of-use clothes back to
the store.118
-- Monetizing idle capacity. Office space sharing at
LiquidSpace, errand-running services at TaskRabbit and
accommodation sharing at Airbnb (among many other
examples) provide a platform for customers to trade idle
capacity of their assets. Airbnb, launched in 2008, is
currently valued at US$ 2 billion. An average New York
Airbnb host user earns an estimated US$ 21,000 annually
from the application.119
-- Having better control of the product life cycle. Ricoh sells
60% of their products with a service contract, which allows
it to orchestrate supply and demand planning, as well as
set up efficient reverse logistics.120
-- Creating stable revenue streams and premium.
Companies may be able to achieve further differentiation
by moving towards usage-based models. Airlines already
extract premium by segmenting their passengers along
usage patterns based (for instance) on their flexibility
needs. Many companies are now increasingly using loyalty
programmes and yield management approaches to
maximize return from their fixed-asset base.
Mainstream the sharing economy and collaborative
usage models.
To scale up the demand-focused business models, success
stories and better demonstration of their economic and
non-economic benefits are needed to encourage adoption
by companies and cities/regions. The former will be able to
create or revise related regulation to encourage further
growth of the business models.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
47
Focus on pure materials stock
management at the outset
This chapter has examined the three most promising
approaches, detailing how businesses and other
stakeholders could work together to scale up the circular
economy. The World Economic Forum and the Ellen
MacArthur Foundation aim to catalyse action that can swiftly
accelerate transition to the circular economy, achieving
tangible outcomes within two years. The approach chosen
also needs to have sufficient global reach and cross-industry
application. In addition, it will ideally build on the leadership of
partner companies drawn from both organizations, and
benefit from their mutual synergies.
With these criteria in mind, the analysis shows that the
materials flow perspective as the most promising to initiate
the project. Catalysing “trigger projects” to develop pure
materials flows could significantly accelerate scale-up of the
circular economy across many sectors.
Why not the first or the third options? The first—reorganizing
global reverse networks for products and components—
provides arbitrage opportunities that are easier for individual
companies to realise. First movers can quickly capture the
benefits, as the many examples in this report demonstrate.
However, this opportunity is most accessible to individual
companies, or within specific industry verticals [Figure 27].
Transition is already gradually underway in most sectors on
the third option, business model innovation. The critical lever
for accelerating the shift is demonstrating its economic
benefits and success. Showcasing its non-economic benefits
sufficient to drive adoption by large companies and regulators
would also be important. The Forum’s Young Global Leader
Circular Economy Innovation and New Business Models
Taskforce has been working towards this goal over the past
two years. Collaborative Lab, an innovation consultancy,
facilitates a large platform for sharing best practice where
businesses and regions can learn from one another’s
experience. Work is therefore already under way in this field.
Materials flows are the largest common denominator, where
multiple stakeholders need support to collaborate effectively
in order to generate benefits for multiple players along the
value chain, across sectors and geographies [Figure 26].
Relevant pre-work can also be leveraged, yielding substantial
improvements in the short to medium term. The analysis in
addition to feedback from many companies and expert
therefore suggest that the best starting point is to establish
pure materials flows for the Golden oldies (paper and card
board), High potentials (polypropylene), Rough diamonds
(carbon dioxide) and Future blockbusters categories (biobased and 3D-printing) on a large scale. This will be the
fastest way to scale-up the circular economy.
Pursuing this path will likely entail positive second-order
effects, such as job creation and higher value added in the
reverse cycle decoupled from resource price volatility, which
will create a more robust planning environment. This typically
results in superior financial returns, from the overall elimination
of waste, and the associated wider economic benefits.
The opportunity is huge. The next chapter lays out a proposal
on how a joint initiative could capture the opportunity of
option 2 on an unparalleled, global scale—and fast.
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Towards the Circular Economy: Accelerating the scale-up across global supply chains
Figure 27: Archetypes of circular setups—materials flows are the largest
common denominator across value chains
Source: World Economic Forum and Ellen MacArthur Fondation circular economy team
Towards the Circular Economy: Accelerating the scale-up across global supply chains
49
50
Towards the Circular Economy: Accelerating the scale-up across global supply chains
5. Joining forces to make the
change
A multi-stakeholder community of Circular
Economy Champions needs to take the lead.
The World Economic Forum and the Ellen
MacArthur Foundation invite their members to
join forces to rapidly scale up the circular
economy on a global level
Accelerating the scale-up of the circular economy promises
to deliver substantial macro-economic benefits. New
opportunities for corporate growth will also be myriad. The
reduction in materials price volatility alone is estimated at over
a trillion dollars a year. The job creation potential of
remanufacturing globally and recycling in Europe is predicted
to exceed 1 million.121 Worldwide, the figure will far exceed this
over time.
Concerted action is key. The challenges are not
insurmountable, but addressing the leakage points described
will require cooperation from players across different
industries. In the words of Rudi Daelmans, Desso’s Director
of Sustainability, “We cannot do it alone”.122 Collaboration
across different stakeholders, industries and geographies will
be needed to devise standards and mechanisms for
materials use, conversion methods, and reverse setups.
With their mutually reinforcing comparative advantages in
both catalysing global public private collaboration and driving
insight and action on the circular economy, the World
Economic Forum and the Ellen MacArthur Foundation will
provide a unique project platform to help usher in this change
at scale quickly. The Forum as a catalyst of global, regional
and industry transformation will draw upon its members to
convene a multi-stakeholder community of global leaders to
shape this agenda. The Foundation’s charitable purpose is to
accelerate transition towards the circular economy, making it
ideally suited to this task. It will act as a knowledge partner,
ensuring quality control of the conceptual framework.
Together, the Forum and Foundation will provide companies,
governments, civil society and academic experts with a
platform for collaboration at a pre-competitive stage across
industry, regions and sectors, co-designing a process to
enable systemic change. They will take charge of ensuring
programme management, execution and delivery within this
cross-institutional setup.
Project charter
Together, the Forum and the Foundation pledge to accelerate
the transition time from the usual 30 - 35 years that could be
expected for a global undertaking of this kind to 5 - 10 years
for major materials. The Collaboration will convene and
commit players that control 5 - 10 percent of global volume in
the four selected materials categories to participate from the
outset. These will reap the rewards of becoming first-movers,
as well as being flagships that demonstrate excellence to
their peers, with the available platforms of the Forum and the
Foundation to promote their leadership and the project. The
initiative aspires to realise the economic and non-economic
value of the circular economy. For example, the four to five
waves established in this project would aim to reap net
benefits of at least US$ 500 million and 100,000 new jobs, as
well as to avoid/valorize 100 million tonnes of materials waste
within five years. The concrete goal will be defined during the
initial phase of the project. Progress will be quantified on a
regular basis using the circularity calculator, along the
dimensions of materials, labour and energy inputs, as well as
carbon emissions and balance of trade.
A clear plan of action
Creating a preferred list of pure, high-quality materials with
cross-industry applications is the central concept. This will
aggregate volume and enhance stock valorization. Proof of
concept with a few materials will also be crucial. The second
key objective is to catalyse enabling mechanisms to
facilitate efficient materials flows. These actions together
will trigger a self-reinforcing cycle. Replicating the process for
further materials will also be much easier, as the learnings will
be transferable.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
51
1. Create a preferred list and achieve proof of concept
Detailed specifications will make the difference. Business
leaders and other stakeholders will specify precise criteria for
assembling building blocks for four to five different materials.
Subgroups will focus on each of these materials flows, and
then take at least two – possibly three – ‘live’.
Create a preferred list of pure, high-quality materials as the
building blocks of tomorrow. The first stage will involve
outlining solutions (or mechanisms)—together with initiative
participants—that can address the leakage points quickly,
covering the following analyses:
-- Select materials to focus on and confirm the rationale
for selecting these signature materials with participants.
The materials fall into two general groupings. The first
covers current high-volume, high-value materials stocks:
products such as paper and cardboard for the Golden
Oldies and polypropylene for High Potentials. The second
encompasses materials relevant for future manufacturing
processes, such as bio-based materials/materials for 3D
printing in the Future Blockbusters category, and carbon
dioxide in the Rough Diamonds category. These materials
have different starting points in terms of current volume,
collection rate, quality of materials recovered, and technologies to improve scale-up (both available and upcoming).
Once a firm decision on these materials has been made,
subgroups are set up for each material, and carry through
the actions with that material specifically.
-- For the first material class, understand the current materials flows for these selected materials, leveraging existing
knowledge to identify and quantify leakage points, which
will give an indication of the potential benefits of closing the
gaps for all parties involved. For the second class of
materials, the technological landscape will be mapped out
to identify the most promising areas (with a wide range of
applications and high potential volume) to scale up and
understand what is required to get there. While the details
will differ by the material in question, the main barriers will
be technical, infrastructural, commercial, or regulatory in
nature. Some technical and regulatory barriers should be
analysed from a cross materials flow perspective, as these
will ideally be addressed at a systemic level.
-- Define the intended use and defined use for each material
and related products.123 These are important because the
preferred list of materials and their building blocks, or
additives, depends on what they are intended to do and
where they are intended to go.
-- Intended use describes what the product is practically
intended to do for the user. For example, Desso working
with EPEA identified a new value-added Intended Use
for carpets; cleaning the air. By focusing on Intended
Use Desso was able to generate new markets and
revenues.
-- Defined use describes the pathway of products or
materials as technical nutrients and biological nutrients
(see Figure 2). As part of this, the defined use period
describes how long the product or material is used before
being discarded, to facilitate replacement and recovery.
Defined use and defined use periods are optimized after
intended use is clarified.
-- Derive approaches for addressing the leakage points or
scaling up, including how to design building blocks and
conversion methods for each flow. A list of non-toxic
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Towards the Circular Economy: Accelerating the scale-up across global supply chains
polymer additives that are easy to separate during
recovery—only mechanical mixed additives, perhaps—
would be one such example, or changes in product design
to allow easy disassembly. Another aspect to cover will be
how to set up the reverse loop to ensure quality of the
materials recovered (including potential changes to the
business model). Also, what other applications can the
materials be used for? The approaches will be prioritized
by impact and feasibility.
A number of existing initiatives already make inroads into
this space including EPEA in Hamburg, Germany with a
catalogue of defined usage scenarios for products and
materials with description of building blocks that are safe
and/or recyclable to be used in production.124 Such
database can be leveraged and scaled up across the
materials in focus.
-- Jointly develop an action plan to implement the most
impactful and feasible approaches with relevant internal
and external stakeholders, ensuring cross-functional
involvement from departments such as R&D,
Procurement, and Marketing & Sales. Players will be
involved from the entire cross-supply cycle, including
suppliers, contractors, recyclers and logistics suppliers, as
well as cross-industry players. In addition, a road map to
phase out toxic materials across the supply cycle is
needed as the pure material toolbox scales up.
-- Define mechanisms for continuous improvement of value
creation and cost reduction. The former will focus on
seeking higher-value applications for the same materials
flows, and valorizing a broader set of material flows. Cost
reduction will concentrate on improving scale, logistics,
and processes—both how the waste stream is created,
and how waste/by-products are best processed to
recover value.
-- If solutions are not available today, identify who else in the
system can provide support in the short, medium, and
long term. This may include local, regional or national
authorities, universities and research institutions, or
industry associations.
Mobilizing multiple stakeholders is always a challenge.
Actions need to rely on a commonly agreed fact base around
which the business case is built, with the benefits shared
among everyone involved. Capability building for all
stakeholders involved would also be required to ensure that
all parties are up to speed with the circular economy
concepts and applications. This would include:
-- Initial education/training on the circular model
-- Provision of a series of sector-relevant case studies
-- Provision of a series of tools for identifying and capturing
opportunity (e.g. hotspot tools)
The Foundation’s CE100 programme already has the
capability to provide many elements of a practitioner platform
to support the Forum’s executive-level platform to bring
together a range of participants and showcase real-world
case studies.
Provide proof of concept. Two or more materials flows will
be selected to demonstrate proof of concept. This phase is
critical to understand the feasibility of the approach taken, not
just for the materials flows tested, but also for others in the
broader context, and would entail the following actions:
-- Have a few leading companies commit to applying the
mechanism identified to one (or several) of their products
using only materials from the preferred list. This would
mean changing their product design to allow better reuse
and recycling of the components, and setting up a reverse
loop
-- Estimate the potential economic impact once the end
goal is reached, and the costs of getting there
-- Identify the partners required to organize the supply cycle
from forward to reverse loops, and obtain commitments
from these partners
-- Jointly agree on business models to allow benefit sharing
across the supply cycle
-- Jointly set up a roadmap to achieve the end goal with
partners
The flagship players can showcase their success stories for
global and regional policy-makers as well as investors to
encourage them to participate and motivate systemic
change. Learnings from the proof-of-concept phase will
provide valuable input for the full rollout of all materials flows.
2. Identify benefits and catalyse enabling mechanisms
The second key objective (covered by a different working
group) will be to quantify economic impact/secondary
benefits from the materials focus workstreams and catalyse
cross-cutting enablers to address the leakage points and
sustain change.
Quantify economic impact and secondary benefits. The
significant potential benefits that the circular economy could
yield for each of the stakeholders involved were highlighted in
the two ‘Towards the Circular Economy’ reports. The
research for the first report, looking only at the sectors of
medium-lived complex goods (such as motor vehicles or
consumer electronics) revealed estimated cost savings of up
to US$ 630 billion in Europe after 2020. The second report
considered fast-moving consumer goods (e.g. food and
beverages, apparel, and packaging) on a global scale, and
extrapolated an economic opportunity worth more than US$
700 billion per year, or materials savings of roughly 20%.125
Quantifying these benefits specifically for the materials
selected in the pilots will provide targets and extra impetus.
-- Size the economic benefits of achieving pure materials
flows. The ‘circularity calculator’ described in the first
‘Towards the Circular Economy’ report can be used, with a
materials rather than a product focus. The calculator
compares the inputs needed to make a new product in
today’s linear system with those required to make the
same product using pure materials flows. The analysis
focuses on five key areas of economic and environmental
impact:
-- Labour inputs. The labour required to make a new
product is compared with that required to make a
circular loop, by geography.
-- Energy inputs. The difference in energy needed to make
a new product is quantified versus a circular product.
-- Carbon emissions. The carbon footprint of the process
of manufacturing a new product is compared with the
emissions generated to make a circular loop.
-- Balance of trade. The exports and imports of input and
finished goods across trade routes (including all
geographies involved) are quantified for both the linear
and circular versions.
The analysis will be conducted for one specific product in
each industry. Informed assumptions will then be used to
project the result to determine the total savings on
materials, labour, energy, and carbon emissions as well as
the trade balance effect at a market level. The premise will
be that producers across a specific product industry (e.g.
the mobile phone market) adopt the pure materials flows
approach. The combined effect of all relevant industries for
each materials flow will yield the total economic impact (for
that materials flow).
-- Assess the economic benefits from enhanced innovation.
Innovation will also flourish as a result. The transition
towards pure materials flows will lead to more blue skies
thinking across the economy. The benefits of this include
higher rates of technological development, improved
materials, labour, and energy efficiency, more new
business models, and more profit opportunities for
companies. Indicators will be developed to quantify these
benefits.
-- Measure the potential for reducing waste. In the steady
state, the volume of products and components associated
with the materials flows examined that would otherwise
end up in landfills will be significantly reduced. The waste
elimination potential can be estimated by understanding
the leakage points in the materials flows.
Mobilizing the public sector and other stakeholders.
Enablers will be required to accelerate the transition,
addressing both common leakage points across the
materials and specific issues highlighted by the proof-ofconcept activities. The momentum and findings from the
commitment of key players in the private sector will be
leveraged to draw in policy-makers and other key
stakeholders (such as investors and thought leaders). These
will be encouraged to examine the systems enablers needed
to scale up the circular economy, including regulatory
change, investment focus, and R&D effort, and advances in
information technology. The public sector and other
stakeholders are critical to the transition towards an economy
with pure materials flows, and would have at least two
important roles to play in the transition period:
-- Materials inputs. The materials intensity of a ‘linear’
version is compared with the materials intensity of a
‘circular’ version, calculated in terms of various circular
options (reuse, refurbishing, remanufacturing, recycling).
Towards the Circular Economy: Accelerating the scale-up across global supply chains
53
-- Drive regulatory change. Changes in regulation are
required to quickly scale up pure flows and sustain the
new economy. Government and public sector entities can
help to foster cross-industry collaboration by establishing
appropriate regulations, standards and guidelines.
Governments could re-examine certification programmes
to enable new ways of confirming the viability or safety of
circular products; optimize and control the use of incinerators to avoid negative effect on materials recycling; and
revisit current trade barriers and regulatory gray zones to
facilitate transboundary materials flows. This would require
standards and transparency of materials content. Product
passports could help to address this issue as they would
provide information about the components and materials a
product contains, and how they can be disassembled and
recycled at the end of the product’s useful life.126 In July
2013, the European Resource Efficiency Platform recommended ‘product passports’ in its interim set of recommendations, among other measures.
In addition, full transparency on materials pricing, that
reflects the real costs of materials (including externalities)
needs to be established to drive the efficient use of
resources.
Access to finance and risk management tools will support
capital investment and R&D for all players across value
chains. Governments can create further funding stimuli by
underwriting some of the risks associated. In Brazil, for
instance, the Ministry of Agriculture’s ABC program
provides access to preferred credit conditions to
companies that undertake innovative initiatives.
-- Catalyse investment in new business models and
innovations. Businesses and entrepreneurs often cannot
mobilize the capital required, however ripe for scale-up
their technologies and business models look. Solutions
range from brokering traditional investment through
public-private partnerships to using more innovative
solutions, including crowdfunding.
In parallel to this initiative, the Forum is launching a multistakeholder platform to facilitate a global agenda on
science, technology and innovation. The goal is to bring
together business, policy and scientific leaders and
institutions to collaboratively drive the innovations needed
to address global challenges. One of the proposed areas
of this platform is to broker a fund to help address complex
global issues, with the circular economy as one of the pilot
topics. The timeline for this platform fits well with this
proposal, creating synergies especially on the innovation
front.
Over 450 crowdfunding platforms127 now exist, including
some well-known examples such as Kickstarter and
Indiegogo. These platforms have provided many artists,
charities, and start-ups with access to financing. Title II of
the JOBS Act legislation in the US in July 2013 has now
made it permissible for companies—for the first time in
over 80 years—to raise investment via equity
crowdfunding.128 This shift will encourage companies of all
sizes to tap into a large pool of finance from small
investors. The greater use of digital technology has made it
easier for investors to identify and compare investment
options. Transparency on the economic benefits of new
business models and innovations in materials science will
encourage the advance of these investment approaches
to support transition to the circular economy.
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Towards the Circular Economy: Accelerating the scale-up across global supply chains
-- Mobilize advances in information technology.
Information technologies (IT) play a key role in enabling the
transition towards circular business models. This role
ranges from tracing materials and products, organizing
reverse logistics and accelerating innovation (with
crowdsourcing and information sharing) to mining big data
(for mapping resource and value flows and tracking
indicators to measure progress). While some of these
technologies are already advanced (such as sensors, the
cloud, and social networks), there are enormous
opportunities for the IT industry to work with businesses
and other stakeholders on identifying critical areas for
further improvement. The difficulty of ensuring the
availability, quality and consistency of resource-related
data remains a significant obstacle, especially at national
and global levels. The enhanced mining of big data will
help address this issue.
All stakeholders are aware that today’s model of wealth
creation is built on excessive material and energy waste, and
cannot be maintained indefinitely. As the shift towards a more
circular model assumes clearer contours, the value of its
design paradigm cannot be overrated. The time to act is now.
Substantial scale-up will require the concerted effort of a few
powerful leading institutions. We hope this initiative will create
sufficient appeal for leaders to step forward and advance the
joint agenda, not just for the common good, but also to reap
first-mover advantage. Delivering on this agenda will enable
us all to be better stewards of our supply flows and—
eventually—of our planet.
Please contact the circular economy team
([email protected]), if you are interested in
learning more about this initiative.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
55
Glossary
Advanced and transition scenarios
Materials recycling
-- Transition scenario. Assumes only changes in product
design and reverse supply chain skills. Analyses in the two
‘Towards the Circular Economy’ reports typically assumed
improvements in the underlying economics, with collection
rates increasing by 20 to 30 percentage points, and a shift
of approx. 30 percentage points from recycling to
refurbishing or remanufacturing activities
-- Functional recycling. A process of recovering materials for
their original purpose or for other purposes, excluding
energy recovery
-- Advanced scenario. Demonstrates potential repercussions
in a world that has undergone more radical change and
has further developed reverse technologies and
infrastructure and other enabling conditions, such as
customer acceptance, cross-chain and cross-sector
collaboration, and legal frameworks. Analyses in the two
‘Toward the Circular Economy’ reports assumed collection
rates increasing by 30 to 40 percentage points and an
additional shift of 5 to 10 percentage points to refurbishing
or remanufacturing
Arbitrage opportunities. Opportunities to take advantage of
a price difference between two or more scenarios. In the
circular economy, an arbitrage opportunity entails the
benefits in terms of material costs, labour, and energy that
circular setups provide over linear models
Bill of materials (BOM). A list of raw materials, subassemblies, intermediate assemblies, sub-components and
parts, and the quantities of each needed to manufacture a
specific end product
Bio-based vs. biodegradable Many bio-based products
such as, for example, biopolymers are not necessarily safely
biodegradable because they contain additives such as heavy
metals or are combined with non-biodegradable materials.
As well, petroleum-based products that are not bio-based
can be biodegradable. Bio-based materials are derived from
biological source, belonging to the biosphere. The definition
of “biodegradable” includes that the material is shown to
degrade completely in an industrial composting facility within
a prescribed time frame.
Cascading of components and materials. Putting
materials and components into different uses after end-of-life
across different value streams and extracting, over time,
stored energy and material ‘coherence.’ Along the cascade,
this material order declines (in other words, entropy
increases)129
Electrical and electronic equipment (EEE). Comprising
both electrical equipment and electronic equipment.
Electrical equipment includes any machine powered by
electricity, such as major appliances and power tools.
Electronic equipment encompasses equipment that involves
the controlled conduction of electrons (using a
semiconductor), allowing the amplification of weak signals for
use in information processing, telecommunications, and
signal processing, as for example in computers, mobile
phones, television sets, refrigerators, and office equipment
End-of use. Materials/products at the end of their primary
use, that are collected and returned to the same usage, or
cascaded to a new one
56
Towards the Circular Economy: Accelerating the scale-up across global supply chains
-- Downcycling. A process of converting materials into new
materials of lesser quality and reduced functionality
-- Upcycling. A process of converting materials into new
materials of higher quality and increased functionality, also
by improving on a downcycling process
Plastics. Synthetic polymers consisting of thermoplastics,
polymers that become pliable or mouldable above a specific
temperature, and return to a solid state upon cooling.
Alternatively, these may be thermoset plastics, which are
polymers that irreversibly cure either via heat, chemicals, or
radiation. Thermoplastics are more widely used (have the
highest volumes), including the four most common polymers:
-- Polyethylene (PE): High-density polyethylene (HDPE) is
used to make milk jugs, margarine tubs and water pipes.
Low-density polyethylene (LDPE) is soft and flexible, and is
used in the manufacture of squeeze bottles, sacks and
sheets
-- Polypropylene (PP): Used in reusable plastic containers,
diapers, sanitary pads, ropes, carpets, plastic moldings,
piping systems, car batteries, insulation for electrical
cables, etc.
-- Polyvinyl chloride (PVC): Used in the construction industry,
such as vinyl sidings, drainpipes, gutters and roofing
sheets (as it is resistant to acids and bases)
-- Polyethylene terephathalate (PET): Used in beverage
bottles, textiles, specialty films, etc.
Polymers. Large molecules composed of many repeated
subunits (monomers). Polymers can be synthetic (plastics) or
natural biopolymers (such as polysaccharides, DNA, or
proteins)
Rebound effect. The behavioral or other systemic
responses to the introduction of new technologies that
increase the efficiency of resource use. These responses,
including energy consumption, usage of natural resources or
other inputs (i.e. labour), tend to offset the beneficial effects of
the new technology or other measures taken.
Refurbishment. A process of returning a product to good
working condition by replacing or repairing major
components that are faulty or close to failure, and making
‘cosmetic’ changes to update the appearance of a product,
such as cleaning, changing its fabric, painting or refinishing it.
Any subsequent warranty is generally less than issued for a
new or a remanufactured product, but the warranty is likely to
cover the whole product (unlike repair). Accordingly, the
performance may be less than as-new
Remanufacturing. A process of disassembly and recovery
at the subassembly or component level. Functioning,
reusable parts are taken out of a used product and rebuilt
into a new one. This process includes quality assurance and
potential enhancements or changes to the components
Literature
Reuse of goods. The use of a product again for the same
purpose in its original form or with little enhancement or
change. This can also apply to what Walter Stahel calls
‘catalytic goods,’ e.g., water used as a cooling medium, or in
process technology
Supply loops. Forward and reverse logistics setup to
facilitate materials/product flows through the system from
inputs/raw materials, production, finished goods, and
end-of-use products back to raw materials, together with
intermediate steps to prolong the product life cycle
Waste electrical and electronic equipment (WEEE).
Discarded electrical and electronic devices that still contain
significant valuable materials, including metals (e.g. steel,
copper, rare minerals) and plastics.
Benyus, J., Biomimicry: Innovation Inspired by Nature, William
Morrow Paperbacks; 2nd edition (September 17, 2002).
Benyus, J. “Biomimickry in Action”, posted 6 April 2009, at:
Ted. Thoughts Worth Spreading. (http://blog.ted.
com/2009/08/06/biomimicry_in_a/).
Botsman, R, Rogers, R. What’s Mine Is Yours: How
Collaborative Consumption is Changing the Way We Live.
2010. Harper Business.
Chapman, A. et al., Remanufacturing in the U.K. – A
Snapshot of the U.K. Remanufacturing Industry; Centre for
Remanufacturing & Reuse report, August 2010.
Disruptive technologies: Advances that will Transform Life,
Business, and the Global Economy, May 2013, McKinsey
Global Institute.
Geng, Y., et al. “Measuring China’s Circular Economy”;
Science; March 2013.
Global Risks 2012, Seventh Edition, Davos, World Economic
Forum.
Hansen, K., Braungart, M., and Mulhall, D., “Resource
Repletion”, The Springer Encyclopedia of Sustainability
Science and Technology, Meyers, Robert A. (ed.), July 2012
Hunt, A. J., ed., Element Recovery and Sustainability, RSC
Green Chemistry Series, Cambridge, 2013.
Lee, B., et al. Resources Futures. A Chatham House Report,
London, 2012.
McDonough, W, Braungart, M. Cradle to Cradle: Remaking
the Way We Make Things, New York: North Point Press,
2002.
McDonough, W, Braungart, M., Clinton, W., The Upcycle:
Beyond Sustainability—Designing for Abundance, North
Point Press, 2013.
Parsons Brinckerhoff: Accelerating the uptake of CCS:
Industrial use of captured carbon dioxide, 2011.
Sharing Economy Position Paper, World Economic Forum’s
Young Global Leaders Sharing Economy Working Group,
2013.
Stahel, W., “Service, Performance or Goods,” Circular
Economy Network, uploaded 1 June 2012 (http://de.
slideshare.net/CircularEconomy/service-performance-orgoods-by-walter-stahel).
Towards the Circular Economy 1: Economic and Business
Rationale for an Accelerated Transition; January 2012,
Cowes, Isle of Wight: Ellen MacArthur Foundation.
Towards the Circular Economy 2: Opportunities for the
consumer goods sector; January 2013, Cowes, Isle of Wight:
Ellen MacArthur Foundation.
Urban world and the rise of the consuming class; June 2012,
McKinsey Global Institute.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
57
Appendix
Appendix 1: Returnable bottles – benefits of a local closed loop system
Weight
per cycle
kg
Number of bottles
Indexed to returnable
glass bottle
Output
One-way PET
One-way glass
Returnable PET
Returnable glass
Improved packing
economics
Material cost Other cost
per cycle
per cycle
USD
USD
40
0.77
2.82
0.00
40
8.40
6.29
0.00
8
0.21
0.94
0.71
1
0.28
0.21
0.14
Cost of virgin PET 4.59 USD/kg, glass 0.75 USD/kg, recycled PET
bottle grade 3.67 USD/kg (80% of virgin cost)
Cost of collection and washing is USD 0.15 per pack
Shipping cost is USD 0.074 per pack for PET and USD 0.12 per
pack for glass
Source: World Economic Forum and Ellen MacArthur Foundation circular economy team
Appendix 2: Power drill – business case for circular business setup
Drill Driver Model – Calculation
in USD
Status quo
Manufacturing
Recycling
70,070
67,270
67,270
81,270
0
1,400
4,200
5,040
Material cost
13,000
10,660
4,836
5,980
Labour cost
9,674
9,064
9,940
12,045
Plant cost
9,718
8,479
6,710
8,175
Shipping cost
3,322
3,322
5,242
5,242
SG&A cost
8,098
7,058
5,372
6,550
Total costs
43,812
40,013
36,300
43,043
Profits
26,258
27,257
30,970
38,239
Revenue
Cash-back cost
Improved margins
with different
scenarios of circular
business setup
Base case
1,000 drills are made in China and sold in EU
Manufacturing
case
Drills are made in China and sold in EU
20% of units will be refurbished in EU and sold in EU
Total number of units remains as with base case
Recycling case
Drills are made in China and sold in EU
20% of units will be refurbished in EU
70% of units will be collected and recycled, with components used in manufacturing
Total number of units remains as with base case
Additional
sales case
Drills are made in China and sold in EU
20% of units will be refurbished in EU
70% of units will be collected and recycled, with components used in manufacturing
20% units increase in unit sales due to new segments of customers for cheaper remanufactured units
Other
assumptions
Unit price for one new drill is USD 70, remanufactured units sold at 80% of original price
Cash-back cost assumed at 10% and 5% of original price for good condition and poor condition
sets
Shipping included at current prices, labour plant and material cost based on expert input, SG&A
25%
Source: Expert interviews; World Economic Forum and Ellen MacArthur Foundation circular economy team
58
Additional Sales
Towards the Circular Economy: Accelerating the scale-up across global supply chains
List of figures
Figure 1: Sharp price increases in
commodities since 2000 have erased
all the real price declines of the 20th
century
Figure 2: The circular economy—an
industrial system that is restorative by
design
Figure 3: Sources of value creation for
the circular economy
Figure 4: A circular economy would not
just ‘buy time’—it would reduce the
amount of material consumed to a
lower set point
Figure 5: Circularity in manufacturing
could yield net materials cost savings of
up to US$ 630 billion p.a. in the EU
alone
Figure 6: Circularity in relevant FMCG
sectors could yield net materials cost
savings of ~US$ 700 billion p.a. globally
Figure 7: Revamping industry, reducing
materials bottlenecks and creating
tertiary sector opportunities would
benefit labour, capital and innovation
Figure 8: The price went up for most
components of the 14.4V drill drive
between 2010 and 2011
Figure 9: A potential consumption time
bomb will lead to inevitable resource
constraints
Figure 10: Supplies of key resources are
limited, while recycling rates for many
remain low
List of text boxes
Figure 18: Increases in product and
materials complexity lead to significant
materials losses
Figure 19: Metals can easily be
distinguished by density and other
physical properties, while polymers
cannot
Figure 20: Global PET flow—a large
amount of PET collected from bottles is
used in other applications
Box 1: Opportunities in transitioning to a
circular model
Box 2: The ‘sharing economy’ and its
implications for the circular economy
Box 3: Regional examples of
accelerating the circular economy
Box 4: The evolution of PET recycling
for beverage bottles
Box 5: The growth of 3D printing
Figure 21: Reverse logistics should be
as sophisticated as forward logistics—
power drill example
Figure 22: If adopted in its entirety, a
circular setup can improve margin—
power drill example
Figure 23: Materials are the greatest
common denominator across industries
and geographies
Figure 24: Proposed materials classes
with different starting points: each
requires a different action plan
Figure 25: Fibre flows in the pulp and
paper value chain—recovered fibre is
responsible for almost 50% of pulp
supply for paper
Figure 26: The cost curve has
significant potential for profitable use of
CO2
Figure 27: Archetypes of circular
setups—materials flows are the largest
common denominator across value
chains
Figure 11: Replenishing reserves is
increasingly difficult and expensive
Figure 12: The evolving risk
landscape—resources-related risks are
among the most urgent
Figure 13: Simplified bill of materials
(BOM) explosion: Power drill
Figure 14: Archetypes of supply chains
and loops
Figure 15: The returnable glass bottle
system is an inherently circular business
with attractive economics
Figure 16: Excess capacity in containers
returning from the US or EU to China is
reflected in lower freight rates
Figure 17: New polymers continue to
emerge, mostly driven by new
combinations of old monomers
Towards the Circular Economy: Accelerating the scale-up across global supply chains
59
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121.
ased on the Automotive Parts Remanufacturers
B
Association’s estimate that 500,000 jobs have been
created in the remanufacturing industry for products
ranging from automotive components and electrical and
electronic equipment to furniture and construction
equipment, and Sita Group’s estimate that some 500,000
jobs have been created by the recycling industry in the EU.
122.
Interviews with Rudi Daelmans, Director of Sustainability at
Desso.
123.
Intended Use, Defined Use, and Defined Use Periods are
described further in the optimization protocol developed by
EPEA Internationale Umweltforschung.
124.
Interview with Douglas Mulhall, representative of the
Academic Chair, Cradle to Cradle for Innovation and Quality
Rotterdam School of Management, Erasmus University, as
well as EPEA Internationale Umweltforschung.
90. 91. Beyerlein, A., Nylon Fiber Facts, Clemson University, [1999]
(http://nylene.com/nylene_pdfs/clemson_university_report.
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Marketing, Communications & C2C, Rudi Daelmans,
Director of Sustainability, and Willem Stas, Director of
Operations at Desso.
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92. Improving Food Grade rPET Quality for Use in UK
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93. An estimated 55 million tonnes of recovered fibres is lost
from processing globally (McKinsey analysis). With the
market price of recovered paper (testliner) at US$ 577/
tonne, the value loss is US$ 32 billion.
94. Towards a Circular Economy 1, Ellen MacArthur
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95. Interviews with Philip Hawkins, Assistant General
Manager—Business Strategy SCM1, Ricoh UK, and Olivier
Vriesendorp, Director of Product Marketing Centre, Ricoh
Europe.
96. McKinsey expert interviews.
97. Interviews with Andre Fourie, SAB Head of Sustainable
Development, and Andy Wales, SVP of Sustainable
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98. See note 32 and note 83.
125.
See note 1 and note 22.
99. Automotive Parts Remanufacturers Association (http://
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100.
he Circular Economy Applied to the Automotive Industry,
T
July 2013, Ellen MacArthur Foundation.
101.
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T
MacArthur Foundation.
102.
lastics Recyclers Europe. Husky Injection Molding
P
Systems: Quantifying Environmental Impacts of
Carbonated Soft Drink (CSD) Packaging, 2009. CEMPRE.
Interview with Claus Conzelmann, Vice President, Head of
Safety, Health & Environmental Sustainability at Nestle;
Interview with April Crow, Global Sustainable Packaging
Manager at CocaCola; Nestle Waters (http://www.
nestle-waters.com/environment/bottled-water-recycling/
pet-bottled-water-usa-europe). Expert interviews. Other
public resources. McKinsey analysis.
uropean Commission, Eco-innovation Action Plan news,
E
“European Resource Efficiency Platform pushes for
‘product passports’”, 8 July 2013 (http://ec.europa.eu/
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sustaining architecture for the 21st century: the promise of
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127.
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Composition and Crowdfunding Platforms, May 2012,
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128.
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B
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129.
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H
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103.
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U
Metals—A Status Report, 2011, United Nationas
Environment Programme (UNEP).
104.
Interview with Robert Metzke, Senior Director EcoVision
Program at Philips, and Emile Cornelissen, Head of
Supplier Sustainability and New Venture Integration
Manager of Philips Group Purchasing. Interviews at
Electrolux with Karl Edsjö, Project Manager, Environmental
& European Affairs, as well as Monica Celotto, Project
Leader, and Daniele Gallo, Materials Engineer, both from
the Global Technology Center.
Towards the Circular Economy: Accelerating the scale-up across global supply chains
61
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